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Incentive-Enhancing Preferences: Personality, Behavior and Earnings

  • Samuel Bowles
  • Herbert Gintis
  • Melissa Osborne

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.

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Paper provided by Santa Fe Institute in its series Working Papers with number 01-01-004.

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Date of creation: Jan 2001
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Handle: RePEc:wop:safiwp:01-01-004
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Web page: http://www.santafe.edu/sfi/publications/working-papers.html

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  1. James J. Heckman, 1999. "Policies to Foster Human Capital," NBER Working Papers 7288, National Bureau of Economic Research, Inc.
  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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