Why Does The Introduction of Monetary Compensation Produce A Reduction In Performance?
AbstractAccording to empirical evidence, extrinsic incentives often crowd out intrinsic motivation, thus reducing the effort choices of workers. This article presents a simple model illustrating how the introduction of monetary incentives causes a discontinuous reduction in worker effort as well as a reduction in worker motivation to act in the interest of a principal. The primary finding is that motivation crowding out occurs when then the object of an agent's intrinsic motivation is a principal who is also the source of the extrinsic compensation the agent receives. When intrinsic satisfaction is directed at more generalized social norms of behavior, however, extrinsic rewards will not crowd out intrinsic motivation.
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Bibliographic InfoPaper provided by EconWPA in its series Microeconomics with number 0303005.
Length: 21 pages
Date of creation: 12 Mar 2003
Date of revision:
Note: Type of Document - Microsoft Word 2000; prepared on IBM PC ; to print on HP; pages: 21; figures: included
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Principal-agent problem; incentive compensation; intrinsic motivation; motivation crowding out;
Find related papers by JEL classification:
- D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-03-19 (All new papers)
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