A note on optimal incentives with state-dependent preferences
Sung-Ha Hwang and
Samuel Bowles ()
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Samuel Bowles: Santa Fe Institute, U.S.A. and Dipartimento di Economia Politica, Univerity of Siena, Italy
No 1118, Working Papers from Research Institute for Market Economy, Sogang University
In both experimental and natural settings incentives sometimes under-perform, generating smaller e ects on the targeted behaviors than would be predicted for entirely self-regarding agents. A parsimonious explanation is that incentives that appeal to payo maximizing mo- tives may crowd out non-economic motives such as altruism, reciprocity, intrinsic motivation and other social preferences, leading to disappointing and sometimes even counter-productive incentive e ects. Evidence from behavioral experiments indicates that crowding may take two forms: categorical (the e ect on preferences depends only on the presence or absence of the incentive) or marginal (the e ect depends on the extent of the incentive). We extend an earlier contribution to this journal (Bowles and Hwang, 2008) providing a more general framework for the study of optimal incentives when crowding out results from framing and information e ects including (with evidence for ) categorical crowding, and as a result, an expanded range of situations for which the sophisticated planner will make greater use of incentives when incentives crowd out social preferences than when motivational crowding is absent.
Keywords: Social preferences; public goods; motivational crowding out; explicit incentives; framing; endogenuous preferences (search for similar items in EconPapers)
JEL-codes: D64 H41 D78 D03 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-evo and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:sgo:wpaper:1118
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