A note on optimal incentives with state-dependent preferences
AbstractIn both experimental and natural settings incentives sometimes under-perform, generating smaller e ects on the targeted behaviors than would be predicted for entirely self-regarding agents. A parsimonious explanation is that incentives that appeal to payo maximizing mo- tives may crowd out non-economic motives such as altruism, reciprocity, intrinsic motivation and other social preferences, leading to disappointing and sometimes even counter-productive incentive e ects. Evidence from behavioral experiments indicates that crowding may take two forms: categorical (the e ect on preferences depends only on the presence or absence of the incentive) or marginal (the e ect depends on the extent of the incentive). We extend an earlier contribution to this journal (Bowles and Hwang, 2008) providing a more general framework for the study of optimal incentives when crowding out results from framing and information e ects including (with evidence for ) categorical crowding, and as a result, an expanded range of situations for which the sophisticated planner will make greater use of incentives when incentives crowd out social preferences than when motivational crowding is absent.
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Bibliographic InfoPaper provided by Research Institute for Market Economy, Sogang University in its series Working Papers with number 1118.
Length: 20 pages
Date of creation: 2011
Date of revision:
Social preferences; public goods; motivational crowding out; explicit incentives; framing; endogenuous preferences;
Find related papers by JEL classification:
- D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-CTA-2011-11-28 (Contract Theory & Applications)
- NEP-EVO-2011-11-28 (Evolutionary Economics)
- NEP-EXP-2011-11-28 (Experimental Economics)
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- Samuel Bowles & Sandra Polania-Reyes, 2012. "Economic Incentives and Social Preferences: Substitutes or Complements?," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 368-425, June.
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