Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy

Samuel Bowles and Sandra Polanía Reyes

No 2734, CESifo Working Paper Series from CESifo

Abstract: Policies and explicit private incentives designed for self-regarding individuals sometimes are less effective or even counterproductive when they diminish altruism, ethical norms and other social preferences. Evidence from 51 experimental studies indicates that this crowding out effect is pervasive, and that crowding in also occurs. A model in which self-regarding and social preferences may be either substitutes or complements is developed and evidence for the mechanisms underlying this non-additivity feature of preferences is provided. The result is a preference-based analogue to the Lucas Critique restricting feasible implementation to allocations that are supportable given the effect of incentives on preferences.

Keywords: public goods; behavioural experiments; social preferences; second best; motivational crowding; explicit incentives (search for similar items in EconPapers)
JEL-codes: A13 C90 D02 D63 D64 D78 E61 H41 Z13 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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