IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v77y2020icp108-117.html
   My bibliography  Save this article

Avoiding the crowding-out of prosocial motivation in microfinance

Author

Listed:
  • De Pril, Julie
  • Godfroid, Cécile

Abstract

While financial incentives may increase extrinsic staff motivation, they may also have a negative effect on prosocial motivation, as highlighted by the motivation crowding-out theory. The threshold at which monetary rewards induce this crowding-out effect remains unknown. The aim of this paper is to determine, with a mathematical model, an optimal incentive scheme that microfinance institutions may use to increase staff members’ financial performance while preserving their prosocial motivation and thus avoiding the crowding-out effect. The results show that the amount of the monetary reward should be sufficiently high in order to maintain microfinance loan officers’ prosocial motivation. However, offering such large monetary rewards will result in higher operating expenses that MFIs will probably pass on to clients through a higher interest rate, which may jeopardize their social mission.

Suggested Citation

  • De Pril, Julie & Godfroid, Cécile, 2020. "Avoiding the crowding-out of prosocial motivation in microfinance," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 108-117.
  • Handle: RePEc:eee:quaeco:v:77:y:2020:i:c:p:108-117
    DOI: 10.1016/j.qref.2019.09.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976917302879
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Oxford University Press, vol. 41(2), pages 219-255.
    2. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    3. Labie, Marc & Méon, Pierre-Guillaume & Mersland, Roy & Szafarz, Ariane, 2015. "Discrimination by microcredit officers: Theory and evidence on disability in Uganda," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 44-55.
    4. Carl Mellström & Magnus Johannesson, 2008. "Crowding Out in Blood Donation: Was Titmuss Right?," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 845-863, June.
    5. Chervier, Colas & Le Velly, Gwenolé & Ezzine-de-Blas, Driss, 2019. "When the Implementation of Payments for Biodiversity Conservation Leads to Motivation Crowding-out: A Case Study From the Cardamoms Forests, Cambodia," Ecological Economics, Elsevier, vol. 156(C), pages 499-510.
    6. Patrick Reichert, 2018. "A meta-analysis examining the nature of trade-offs in microfinance," Oxford Development Studies, Taylor & Francis Journals, vol. 46(3), pages 430-452, July.
    7. Dan Ariely & Anat Bracha & Stephan Meier, 2009. "Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially," American Economic Review, American Economic Association, vol. 99(1), pages 544-555, March.
    8. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-755, September.
    9. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262014106, September.
    10. Rode, Julian & Gómez-Baggethun, Erik & Krause, Torsten, 2015. "Motivation crowding by economic incentives in conservation policy: A review of the empirical evidence," Ecological Economics, Elsevier, vol. 117(C), pages 270-282.
    11. Tanjim Hossain & King King Li, 2014. "Crowding Out in the Labor Market: A Prosocial Setting Is Necessary," Management Science, INFORMS, vol. 60(5), pages 1148-1160, May.
    12. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
    13. Ernst Fehr & Bettina Rockenbach, 2003. "Detrimental effects of sanctions on human altruism," Microeconomics 0305007, University Library of Munich, Germany.
    14. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    15. Serrano-Cinca, Carlos & Gutiérrez-Nieto, Begoña, 2014. "Microfinance, the long tail and mission drift," International Business Review, Elsevier, vol. 23(1), pages 181-194.
    16. Luigino Bruni & Vittorio Pelligra & Tommaso Reggiani & Matteo Rizzolli, 2020. "The Pied Piper: Prizes, Incentives, and Motivation Crowding-in," Journal of Business Ethics, Springer, vol. 166(3), pages 643-658, October.
    17. Lacetera, Nicola & Macis, Mario, 2010. "Do all material incentives for pro-social activities backfire? The response to cash and non-cash incentives for blood donations," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 738-748, August.
    18. Holmås, Tor Helge & Kjerstad, Egil & Lurås, Hilde & Straume, Odd Rune, 2010. "Does monetary punishment crowd out pro-social motivation? A natural experiment on hospital length of stay," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 261-267, August.
    19. repec:bri:cmpowp:13/320 is not listed on IDEAS
    20. Kerr, John & Vardhan, Mamta & Jindal, Rohit, 2012. "Prosocial behavior and incentives: Evidence from field experiments in rural Mexico and Tanzania," Ecological Economics, Elsevier, vol. 73(C), pages 220-227.
    21. García-Amado, Luis Rico & Pérez, Manuel Ruiz & Escutia, Felipe Reyes & García, Sara Barrasa & Mejía, Elsa Contreras, 2011. "Efficiency of Payments for Environmental Services: Equity and additionality in a case study from a Biosphere Reserve in Chiapas, Mexico," Ecological Economics, Elsevier, vol. 70(12), pages 2361-2368.
    22. Schnedler, Wendelin & Vanberg, Christoph, 2014. "Playing ‘hard to get’: An economic rationale for crowding out of intrinsically motivated behavior," European Economic Review, Elsevier, vol. 68(C), pages 106-115.
    23. S. Bowles & S. Polania-Reyes., 2013. "Economic Incentives and Social Preferences: Substitutes or Complements?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
    24. Bruno S. Frey & Reto Jegen, 2001. "Motivation Crowding Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 15(5), pages 589-611, December.
    25. Schlicht, Ekkehart, 1978. "Labour Turnover, Wage Structure, and Natural Unemployment," Munich Reprints in Economics 1255, University of Munich, Department of Economics.
    26. Ben-David, Itzhak & Agarwal, Sumit, 2012. "Do Loan Officers' Incentives Lead to Lax Lending Standards?," Working Paper Series 2012-07, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    27. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
    28. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-139, May.
    29. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290, National Bureau of Economic Research, Inc.
    30. Beatriz Armendáriz & Ariane Szafarz, 2011. "On Mission Drift in Microfinance Institutions," World Scientific Book Chapters, in: Beatriz Armendáriz & Marc Labie (ed.), The Handbook Of Microfinance, chapter 16, pages 341-366, World Scientific Publishing Co. Pte. Ltd..
    31. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    32. Lalin Anik & Lara B Aknin & Michael I Norton & Elizabeth W Dunn & Jordi Quoidbach, 2013. "Prosocial Bonuses Increase Employee Satisfaction and Team Performance," PLOS ONE, Public Library of Science, vol. 8(9), pages 1-8, September.
    33. Jiwei Qian & Alex Jingwei He, 2018. "The Bonus Scheme, Motivation Crowding-out and Quality of the Doctor-Patient Encounters in Chinese Public Hospitals," Public Organization Review, Springer, vol. 18(2), pages 143-158, June.
    34. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    35. Siciliani, Luigi, 2009. "Paying for performance and motivation crowding out," Economics Letters, Elsevier, vol. 103(2), pages 68-71, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julie De Pril & Cécile Godfroid, 2017. "How to Reconcile Financial Incentives and Prosocial Motivation of Loan Officers in Microfinance?," Working Papers CEB 17-011, ULB -- Universite Libre de Bruxelles.
    2. Handberg, Øyvind Nystad & Angelsen, Arild, 2019. "Pay little, get little; pay more, get a little more: A framed forest experiment in Tanzania," Ecological Economics, Elsevier, vol. 156(C), pages 454-467.
    3. Rode, Julian & Gómez-Baggethun, Erik & Krause, Torsten, 2015. "Motivation crowding by economic incentives in conservation policy: A review of the empirical evidence," Ecological Economics, Elsevier, vol. 117(C), pages 270-282.
    4. Rode, Julian & Gómez-Baggethun, Erik & Krause, Torsten, 2013. "Economic incentives for biodiversity conservation: What is the evidence for motivation crowding?," UFZ Discussion Papers 19/2013, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    5. Joan Costa-i-Font & Mireia Jofre-Bonet & Steven T. Yen, 2011. "Not All Incentives Wash Out the Warm Glow: The Case of Blood Donation Revisited," CESifo Working Paper Series 3527, CESifo.
    6. Yanez-Pagans, Patricia, 2013. "Cash for Cooperation? Payments for Ecosystem Services and Common Property Management in Mexico," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151294, Agricultural and Applied Economics Association.
    7. Luigino Bruni & Vittorio Pelligra & Tommaso Reggiani & Matteo Rizzolli, 2020. "The Pied Piper: Prizes, Incentives, and Motivation Crowding-in," Journal of Business Ethics, Springer, vol. 166(3), pages 643-658, October.
    8. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
    9. Joan Costa-Font & Mireia Jofre-Bonet & Steven T. Yen, 2013. "Not All Incentives Wash Out the Warm Glow: The Case of Blood Donation Revisited," Kyklos, Wiley Blackwell, vol. 66(4), pages 529-551, November.
    10. Takahashi, Hiromasa & Shen, Junyi & Ogawa, Kazuhito, 2016. "An experimental examination of compensation schemes and level of effort in differentiated tasks," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 61(C), pages 12-19.
    11. Kajackaite, Agne & Werner, Peter, 2015. "The incentive effects of performance requirements – A real effort experiment," Journal of Economic Psychology, Elsevier, vol. 49(C), pages 84-94.
    12. Kaczan, David J. & Swallow, Brent M. & Adamowicz, W.L. (Vic), 2019. "Forest conservation policy and motivational crowding: Experimental evidence from Tanzania," Ecological Economics, Elsevier, vol. 156(C), pages 444-453.
    13. Simora, Michael, 2017. "The effect of financial compensation on the acceptance of power lines: Evidence from a randomized discrete choice experiment in Germany," Ruhr Economic Papers 729, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    14. Sanjit Dhami, 2017. "Human Ethics and Virtues: Rethinking the Homo-Economicus Model," CESifo Working Paper Series 6836, CESifo.
    15. Simora, Michael & Frondel, Manuel & Vance, Colin, 2018. "Does financial compensation increase the acceptance of power lines? Evidence from Germany," Ruhr Economic Papers 742, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    16. Christine L. Exley & Stephen J. Terry, 2019. "Wage Elasticities in Working and Volunteering: The Role of Reference Points in a Laboratory Study," Management Science, INFORMS, vol. 65(1), pages 413-425, January.
    17. Simora, Michael & Frondel, Manuel & Vance, Colin, 2020. "Do financial incentives increase the acceptance of power lines? Evidence from Germany," Regional Science and Urban Economics, Elsevier, vol. 85(C).
    18. Christine Exley, 2013. "Incentives for Prosocial Behavior: The Role of Reputations," Discussion Papers 12-022, Stanford Institute for Economic Policy Research.
    19. Newman, George E. & Jeremy Shen, Y., 2012. "The counterintuitive effects of thank-you gifts on charitable giving," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 973-983.
    20. Goette, Lorenz & Stutzer, Alois, 2020. "Blood donations and incentives: Evidence from a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 52-74.

    More about this item

    Keywords

    Crowding-out effect; Reward; Prosocial motivation; Microfinance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:77:y:2020:i:c:p:108-117. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nithya Sathishkumar). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.