Instrment choice and motivation: Evidence from a climate change experiment

Are prices or quantities the best regulatory instrument to align private actions with public interests in the presence of externalities? We add another dimension to this ongoing debate by experimentally analyzing the interaction between instrument choice and intrinsic motivation of regulated agents. The response of subjects facing a trade-off between real CO2 emissions and private monetary payoffs to both a price and a quantity instrument are tested. We find evidence that taxes crowd out intrinsic motivation while emission standards are neutral. Crowding is short term persistent and not well explained by established cognitive theories of motivational crowding.