IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Psychological Foundations of Incentives

  • Falk, Armin
  • Fehr, Ernst

During the last two decades economists have made much progress in understanding incentives, contracts and organizations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this Paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3185
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3185.

as
in new window

Length:
Date of creation: Jan 2002
Handle: RePEc:cpr:ceprdp:3185
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Dufwenberg, Martin & Lundholm, Michael, 1997. "Social Norms and Moral Hazard," Working Paper Series 1997:28, Uppsala University, Department of Economics.
  2. Gachter, Simon & Fehr, Ernst, 1999. "Collective action as a social exchange," Journal of Economic Behavior & Organization, Elsevier, vol. 39(4), pages 341-369, July.
  3. Lindbeck, Assar, 1997. "Incentives and Social Norms in Household Behavior," American Economic Review, American Economic Association, vol. 87(2), pages 370-77, May.
  4. R. Lynn Hannan & John H. Kagel & Donald V. Moser, 2002. "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 923-951, October.
  5. Ted O' Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," Microeconomics 0012002, EconWPA.
  6. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  7. Kandel, E. & Lazear, E.P., 1990. "Peer Pressure and Partnerships," Papers 90-07, Rochester, Business - Managerial Economics Research Center.
  8. Ernst Fehr & Klaus M. Schmidt, . "Theories of Fairness and Reciprocity - Evidence and Economic Applications," IEW - Working Papers 075, Institute for Empirical Research in Economics - University of Zurich.
  9. Mari Rege & Kjetil Telle, 2001. "An Experimental Investigation of Social Norms," Discussion Papers 310, Statistics Norway, Research Department.
  10. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  11. S. Huck & D. Kübler & J. Weibull, 2002. "Social norms and optimal incentives in firms," SFB 373 Discussion Papers 2002,11, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. David Masclet & Charles Noussair & Steven Tucker & Marie Claire Villeval, 2003. "Monetary and non Monetary Punishment in the Voluntary Contributions Mechanism," Post-Print halshs-00175251, HAL.
  13. Roland Benabou & Jean Tirole, 1999. "Self-Confidence And Social Interactions," Working Papers 151, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
  14. David K Levine, 1997. "Modeling Altruism and Spitefulness in Experiments," Levine's Working Paper Archive 2047, David K. Levine.
  15. Ted O'Donoghue & Matthew Rabin, 1997. "Incentives for Procrastinators," Discussion Papers 1181, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Charness, Gary & Rabin, Matthew, 2000. "Social Preferences: Some Simple Tests and a New Model," Department of Economics, Working Paper Series qt46j0d6hb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  17. Ernst Fehr & Alexander Klein & Klaus M. Schmidt, . "Fairness, Incentives and Contractual Incompleteness," IEW - Working Papers 072, Institute for Empirical Research in Economics - University of Zurich.
  18. Ernst Fehr & Simon Gaechter, 1999. "Cooperation and Punishment in Public Goods Experiments," CESifo Working Paper Series 183, CESifo Group Munich.
  19. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  20. Falk, Armin & Gächter, Simon, 2001. "Reputation and Reciprocity: Consequences for Labour Relations," CEPR Discussion Papers 3018, C.E.P.R. Discussion Papers.
  21. Fehr, Ernst & Gächter, Simon, 2001. "Do Incentive Contracts Crowd Out Voluntary Cooperation?," CEPR Discussion Papers 3017, C.E.P.R. Discussion Papers.
  22. Segal, Uzi & Sobel, Joel, 2007. "Tit for tat: Foundations of preferences for reciprocity in strategic settings," Journal of Economic Theory, Elsevier, vol. 136(1), pages 197-216, September.
  23. Uri Gneezy & Aldo Rustichini, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
  24. Carpenter, Jeffrey P., 2004. "Punishing Free-Riders: How Group Size Affects Mutual Monitoring and the Provision of Public Goods," IZA Discussion Papers 1337, Institute for the Study of Labor (IZA).
  25. Fischbacher, Urs & Gachter, Simon & Fehr, Ernst, 2001. "Are people conditionally cooperative? Evidence from a public goods experiment," Economics Letters, Elsevier, vol. 71(3), pages 397-404, June.
  26. Assar Lindbeck & Sten Nyberg & Jörgen W. Weibull, 1999. "Social Norms and Economic Incentives in the Welfare State," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 1-35.
  27. 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.
  28. repec:hhs:iuiwop:476 is not listed on IDEAS
  29. Rehder, Robert R., 1990. "Japanese transplants: After the honeymoon," Business Horizons, Elsevier, vol. 33(1), pages 87-98.
  30. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
  31. Bolton Gary E. & Zwick Rami, 1995. "Anonymity versus Punishment in Ultimatum Bargaining," Games and Economic Behavior, Elsevier, vol. 10(1), pages 95-121, July.
  32. Lindbeck, Assar, 1995. "Welfare State Disincentives with Endogenous Habits and Norms," Working Paper Series 441, Research Institute of Industrial Economics.
  33. Ernst Fehr & Armin Falk, 2003. "Wage Rigidity in a Competitive Incomplete Contract Market," Labor and Demography 0305001, EconWPA.
  34. 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 746-55, September.
  35. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  36. Bohnet, Iris & Cooter, Robert, 2003. "Expressive Law: Framing or Equilibrium Selection?," Working Paper Series rwp03-046, Harvard University, John F. Kennedy School of Government.
  37. Frans van Dijk & Joep Sonnemans & Frans van Winden, 2000. "Social Ties in a Public Good Experiment," CESifo Working Paper Series 273, CESifo Group Munich.
  38. Abbink, Klaus & Bernd Irlenbusch & Elke Renner, 1997. "The Moonlighting Game - An Experimental Study on Reciprocity and Retribution," Discussion Paper Serie B 415, University of Bonn, Germany.
  39. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  40. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  41. Günther G. Schulze & Björn Frank, 2003. "Deterrence versus intrinsic motivation: Experimental evidence on the determinants of corruptibility," Economics of Governance, Springer, vol. 4(2), pages 143-160, 08.
  42. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  43. Gary E. Bolton & Rami Zwick & Elena Katok, 1998. "Dictator game giving: Rules of fairness versus acts of kindness," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(2), pages 269-299.
  44. Cooter, Robert, 1998. "Expressive Law and Economics," The Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 585-608, June.
  45. George A. Akerlof, 1980. "A Theory of Social Custom, of which Unemployment may be One Consequence," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 749-775.
  46. 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.
  47. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  48. Uri Gneezy & Aldo Rustichini, 2000. "Pay Enough or Don't Pay at All," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 791-810.
  49. McCabe, Kevin A. & Rassenti, Stephen J. & Smith, Vernon L., 1998. "Reciprocity, Trust, and Payoff Privacy in Extensive Form Bargaining," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 10-24, July.
  50. Spagnolo, Giancarlo, 1999. "Social relations and cooperation in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 1-25, January.
  51. Besley, T. & Coate, S., 1990. "Understanding Welfare Stigma: Taxpayer Resentment And Statistical Discrimination," Papers 42, Princeton, Woodrow Wilson School - Discussion Paper.
  52. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 2001. "Reciprocity as a Contract Enforcement Device," Levine's Working Paper Archive 563824000000000143, David K. Levine.
  53. Johannesson, Magnus & Persson, Bjorn, 2000. "Non-reciprocal altruism in dictator games," Economics Letters, Elsevier, vol. 69(2), pages 137-142, November.
  54. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-877, October.
  55. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers 052, Institute for Empirical Research in Economics - University of Zurich.
  56. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
  57. Rachel T. A. Croson, 2007. "Theories Of Commitment, Altruism And Reciprocity: Evidence From Linear Public Goods Games," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 199-216, 04.
  58. Charness, Gary, 2000. "Responsibility and effort in an experimental labor market," Journal of Economic Behavior & Organization, Elsevier, vol. 42(3), pages 375-384, July.
  59. Kubler, Dorothea, 2001. "On the Regulation of Social Norms," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(2), pages 449-76, October.
  60. George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
  61. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
  62. Bruno S. Frey & Reto Jegen, 2000. "Motivation Crowding Theory: A Survey of Empirical Evidence," CESifo Working Paper Series 245, CESifo Group Munich.
  63. McCabe, Kevin A. & Rigdon, Mary L. & Smith, Vernon L., 2003. "Positive reciprocity and intentions in trust games," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 267-275, October.
  64. Laury, Susan K. & Walker, James M. & Williams, Arlington W., 1995. "Anonymity and the voluntary provision of public goods," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 365-380, August.
  65. Frey, Bruno S & Oberholzer-Gee, Felix & Eichenberger, Reiner, 1996. "The Old Lady Visits Your Backyard: A Tale of Morals and Markets," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1297-1313, December.
  66. Cooter, Robert, 1998. "Expressive Law and Economics," Berkeley Olin Program in Law & Economics, Working Paper Series qt3w34j60j, Berkeley Olin Program in Law & Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3185. 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: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.