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Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy

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  • Samuel Bowles

    ()
    (Santa Fe Institute, University of Siena, and University of Massachusetts Amherst)

  • Sandra Polanía Reyes

    ()
    (University of Siena)

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    Abstract

    Policies and explicit incentives designed for self-regarding individuals sometimes are less effective or even counterproductive when they diminish altruism, ethical norms and other social preferences. Evidence from 51 experimental studies indicates that this crowding out effect is pervasive, and that crowding in also occurs. A model in which self-regarding and social preferences may be either substitutes or complements is developed and evidence for the mechanisms underlying this non-additivity feature of preferences is provided. The result is a preference-based analogue to the Lucas Critique restricting feasible implementation to allocations that are supportable given the effect of incentives on preferences. JEL Categories: D64, H41, D78, Z13, C90

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    Paper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2009-11.

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    Date of creation: Sep 2009
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    Handle: RePEc:ums:papers:2009-11

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    Keywords: Public goods; behavioral experiments; social preferences; second best; motivational crowding; explicit incentives;

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    Cited by:
    1. Yu-Fu Chen & Michael Funke, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," CESifo Working Paper Series 2759, CESifo Group Munich.
    2. Bengtsson, Niklas & Engström, Per, 2011. "Control and Efficiency in the Nonprofit Sector Evidence from a Randomized Policy Experiment," Working Paper Series 2011:8, Uppsala University, Department of Economics.
    3. Beatrix Eugster & Rafael Lalive & Andreas Steinhauer & Josef Zweimüller, 2011. "The Demand for Social Insurance: Does Culture Matter?," Economic Journal, Royal Economic Society, vol. 121(556), pages F413-F448, November.

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