Psychological Foundations of Incentives

Ernst Fehr and Armin Falk

No 507, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: During the last two decades economists have made much progress in understanding incentives, contracts and organisations. 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.

Keywords: social approval; reciprocity; contracts; incentives; intrinsic motivation; social norms (search for similar items in EconPapers)
JEL-codes: C91 D64 J41 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2002-05
New Economics Papers: this item is included in nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (478)

Published - published in: European Economic Review, 2002, 46 (4-5), 687-724

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Related works:
Journal Article: Psychological foundations of incentives (2002)
Working Paper: Psychological Foundations of Incentives (2002)
Working Paper: Psychological Foundations of Incentives (2002)
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