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

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  • 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
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      by Nick Krafft in open economics on 2010-07-20 03:02:57

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    Cited by:

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    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. 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.
    8. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    9. 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.
    10. 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.
    11. 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.
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    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

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