Does Money Talk? The Impact of Monetary Incentives on User-Generated Content Contributions

Many platforms use monetary incentives to encourage user-generated content (UGC) contributions. However, empirical studies report contradictory findings: monetary incentives may either increase or decrease contribution. To understand the underlying mechanisms, we build a theoretical model where four types of contributors (classified by whether they contribute without monetary incentive and whether they are effective in attracting audience) compete for the audience. We identify two crowding out effects: (1) “motivation crowding out,” where the introduction of a monetary incentive reduces the non-money-driven contributors' motivation to contribute (e.g., contributors may worry that they would be viewed as “greedy”), so they reduce their effort or even stop contributing; and (2) “competition crowding out,” where the low-effectiveness contributors reduce their effort or even stop contributing due to intensified competition when the monetary incentive increases. Under the influence of these two crowding-out effects, the impact of a monetary incentive on the contributors' participation, as well as on their total content volume, is not monotonic. As a result, different equilibrium outcomes emerge as the monetary incentive increases. We also extend our model to the case where the number of contributors in each type could be different and identify more complicated crowding-out phenomena. Our findings offer guidelines for designing monetary incentive schemes for online UGC platforms