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Incentive-Enhancing Preferences: Personality, Behavior and Earnings

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  • Samuel Bowles
  • Herbert Gintis
  • Melissa Osborne

Abstract

Suppose there is a principal-agent relationship between employer and employee in which effort is not contractible, but is elicited through employer incentive mechanisms. We term preferences that allow the employer to elicit effort at lower cost incentive enhancing. We analyze how such preferences affect earnings, and then provide evidence that one of the relevant behavioral traits, efficacy, as well as other psychological aspects of individuals, are signifiant influences on earnings. We conclude that measures of cognitive performance are not sufficient indicators of the effectiveness of schools in promoting student labor market success, incentive enhancing preferences are irreducibly heterogeneous, incentive enhancing preferences help explain the persistence of poverty over generations within families and, unlike cognitive skills, incentive-enhancing traits need not be welfare increasing for their bearers.

Suggested Citation

  • Samuel Bowles & Herbert Gintis & Melissa Osborne, 2001. "Incentive-Enhancing Preferences: Personality, Behavior and Earnings," Working Papers 01-01-004, Santa Fe Institute.
    • Handle: RePEc:wop:safiwp:01-01-004
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    as
    1. James Heckman, 2011. "Policies to foster human capital," Educational Studies, Higher School of Economics, issue 3, pages 73-137.
    2. Samuel Bowles & Herbert Gintis & Melissa Osborne, 2000. "The Determinants of Earnings: Skills, Preferences, and Schooling," UMASS Amherst Economics Working Papers 2000-07, University of Massachusetts Amherst, Department of Economics.
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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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