A Price Is a Signal: on Intrinsic Motivation, Crowding‐out, and Crowding‐in

Friedel Bolle and Philipp E. Otto

Kyklos, 2010, vol. 63, issue 1, 9-22

Abstract: If a previously unpaid activity (e.g. donating blood) is paid, then we often observe that this activity is reduced. In this paper, it is hypothesized that the price offered is taken as a proxy for the “value” of the activity. Depending on how the actor valued the activity previously, crowding‐out or crowding‐in is implied, an effect with or without persistence after stopping the payment. The model can be adapted to a number of similar situations, including those where a high price signals high costs instead of high values. Our “naïve” explanation is confronted with Bènabou and Tirole's (2003) Principal‐Agent model. A questionnaire study supports our basic hypothesis as well as some of the derived consequences, and contradicts Bènabou and Tirole's model.

Date: 2010
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