IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_2734.html
   My bibliography  Save this paper

Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy

Author

Listed:
  • Samuel Bowles
  • Sandra Polanía Reyes

Abstract

Policies and explicit private 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.

Suggested Citation

  • Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy," CESifo Working Paper Series 2734, CESifo.
  • Handle: RePEc:ces:ceswps:_2734
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp2734.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    2. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
    3. Jian Li & Erte Xiao & Daniel Houser & P. Read Montague, 2009. "Neural Responses to Sanction Threats in Two-Party Economic Exchange," Working Papers 1012, George Mason University, Interdisciplinary Center for Economic Science.
    4. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    5. Colin Camerer & Linda Babcock & George Loewenstein & Richard Thaler, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 407-441.
    6. Burks, Stephen & Carpenter, Jeffrey & Goette, Lorenz, 2009. "Performance pay and worker cooperation: Evidence from an artefactual field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 458-469, June.
    7. Maria Claudia Lopez & James J. Murphy & John M. Spraggon & John K. Stranlund, 2012. "Comparing The Effectiveness Of Regulation And Pro‐Social Emotions To Enhance Cooperation: Experimental Evidence From Fishing Communities In Colombia," Economic Inquiry, Western Economic Association International, vol. 50(1), pages 131-142, January.
    8. Maria Claudia Lopez & James J. Murphy & John M. Spraggon & John K. Stranlund, 2013. "Does government regulation complement existing community efforts to support cooperation? Evidence from field experiments in Colombia," Chapters, in: John A. List & Michael K. Price (ed.), Handbook on Experimental Economics and the Environment, chapter 12, pages 346-366, Edward Elgar Publishing.
    9. Jean Tirole & Roland Bénabou, 2006. "Incentives and Prosocial Behavior," American Economic Review, American Economic Association, vol. 96(5), pages 1652-1678, December.
    10. Cardenas, Juan-Camilo, 2004. "Norms from outside and from inside: an experimental analysis on the governance of local ecosystems," Forest Policy and Economics, Elsevier, vol. 6(3-4), pages 229-241, June.
    11. Fischbacher, Urs & Fong, Christina M. & Fehr, Ernst, 2009. "Fairness, errors and the power of competition," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 527-545, October.
    12. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
    13. Matthias Benz & Stephan Meier, "undated". "Do People Behave in Experiments as in the Field? � Evidence from Donations," IEW - Working Papers 248, Institute for Empirical Research in Economics - University of Zurich.
    14. Astrid Hopfensitz & Ernesto Reuben, 2009. "The Importance of Emotions for the Effectiveness of Social Punishment," Economic Journal, Royal Economic Society, vol. 119(540), pages 1534-1559, October.
    15. Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007. "Fairness and Contract Design," Econometrica, Econometric Society, vol. 75(1), pages 121-154, January.
    16. Stanca, Luca & Bruni, Luigino & Corazzini, Luca, 2009. "Testing theories of reciprocity: Do motivations matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 233-245, August.
    17. Danila Serra, 2012. "Combining Top-Down and Bottom-Up Accountability: Evidence from a Bribery Experiment," Journal of Law, Economics and Organization, Oxford University Press, vol. 28(3), pages 569-587, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Quick Hits
      by Nick Krafft in open economics on 2010-07-20 03:02:57

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bengtsson, Niklas & Engström, Per, 2011. "Control and Efficiency in the Nonprofit Sector: Evidence from a Randomized Policy Experiment," Working Paper Series, Center for Labor Studies 2011:6, Uppsala University, Department of Economics.
    2. Arno Riedl, 2009. "Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts," CESifo Working Paper Series 2902, CESifo.
    3. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," UMASS Amherst Economics Working Papers 2009-08, University of Massachusetts Amherst, Department of Economics.
    4. Roland Benabou & Jean Tirole, 2011. "Laws and Norms," NBER Working Papers 17579, National Bureau of Economic Research, Inc.
    5. Yu‐Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(3), pages 290-317, July.
    6. 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 413-448, November.
    7. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    8. Emilio Domínguez & Miren Ullibarri & Idoya Zabaleta, 2012. "Efectos de la reducción de la jornada laboral en un modelo con dos sectores," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 1203, Departamento de Economía - Universidad Pública de Navarra.
    9. Silvia Sacchetti, 2015. "Inclusive and Exclusive Social Preferences: A Deweyan Framework to Explain Governance Heterogeneity," Journal of Business Ethics, Springer, vol. 126(3), pages 473-485, February.
    10. Mikel Berdud & Juan M. Cabasés Hita, 2012. "Incentives Beyond the Money and Motivational Capital in Health Care Organizations," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 1201, Departamento de Economía - Universidad Pública de Navarra.
    11. Samuel Bowles, 2010. "The Coevolution of Institutions and Preferences: History and Theory," Chapters, in: Neri Salvadori (ed.), Institutional and Social Dynamics of Growth and Distribution, chapter 2, Edward Elgar Publishing.
    12. Sprei, Frances & Karlsson, Sten, 2013. "Energy efficiency versus gains in consumer amenities—An example from new cars sold in Sweden," Energy Policy, Elsevier, vol. 53(C), pages 490-499.

    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. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," UMASS Amherst Economics Working Papers 2009-11, University of Massachusetts Amherst, Department of Economics.
    2. 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.
    3. 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.
    4. Bowles, Samuel & Hwang, Sung-Ha, 2008. "Social preferences and public economics: Mechanism design when social preferences depend on incentives," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1811-1820, August.
    5. Andreas Fuster & Stephan Meier, 2010. "Another Hidden Cost of Incentives: The Detrimental Effect on Norm Enforcement," Management Science, INFORMS, vol. 56(1), pages 57-70, January.
    6. Charlotte Klempt & Kerstin Pull, 2018. "The hidden costs of control revisited: Should a sanctioning policy be announced in advance?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 39(2), pages 158-170, March.
    7. Simon Gaechter & Benedikt Herrmann, 2008. "Reciprocity, culture, and human cooperation: Previous insights and a new cross-cultural experiment," Discussion Papers 2008-14, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    8. Xiao, Erte & Houser, Daniel, 2011. "Punish in public," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 1006-1017, August.
    9. 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.
    10. 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.
    11. Simon Gaechter & Benedikt Herrmann, 2008. "Reciprocity, culture, and human cooperation: Previous insights and a new cross-cultural experiment," Discussion Papers 2008-14, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    12. Dickinson, David & Villeval, Marie-Claire, 2008. "Does monitoring decrease work effort?: The complementarity between agency and crowding-out theories," Games and Economic Behavior, Elsevier, vol. 63(1), pages 56-76, May.
    13. Fehr, Ernst & Falk, Armin, 2002. "Psychological foundations of incentives," European Economic Review, Elsevier, vol. 46(4-5), pages 687-724, May.
    14. Agnès Festré & Pierre Garrouste, 2015. "Theory And Evidence In Psychology And Economics About Motivation Crowding Out: A Possible Convergence?," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 339-356, April.
    15. Timo Goeschl & Grischa Perino, 2012. "Instrument Choice and Motivation: Evidence from a Climate Change Experiment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(2), pages 195-212, June.
    16. Xiao, Erte, 2013. "Profit-seeking punishment corrupts norm obedience," Games and Economic Behavior, Elsevier, vol. 77(1), pages 321-344.
    17. 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.
    18. Andrei Bremzen & Elena Khokhlova & Anton Suvorov & Jeroen van de Ven, 2015. "Bad News: An Experimental Study on the Informational Effects Of Rewards," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 55-70, March.
    19. Masella, Paolo & Meier, Stephan & Zahn, Philipp, 2014. "Incentives and group identity," Games and Economic Behavior, Elsevier, vol. 86(C), pages 12-25.
    20. Martinsson, Peter & Villegas-Palacio, Clara, 2010. "Does disclosure crowd out cooperation?," Working Papers in Economics 446, University of Gothenburg, Department of Economics.

    More about this item

    Keywords

    public goods; behavioural experiments; social preferences; second best; motivational crowding; explicit incentives;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    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:ces:ceswps:_2734. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.