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Psychological Foundations of Incentives

  • Ernst Fehr

    (University of Zuerich)

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.

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File URL: http://econwpa.repec.org/eps/mic/papers/0305/0305010.pdf
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Paper provided by EconWPA in its series Microeconomics with number 0305010.

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Length: 37 pages
Date of creation: 07 May 2003
Handle: RePEc:wpa:wuwpmi:0305010
Note: Type of Document - pdf; pages: 37
Contact details of provider: Web page: http://econwpa.repec.org

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