Psychological Foundations of Incentives

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.

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Year of publication:	2002
Authors:	Fehr, Ernst ; Falk, Armin
Publisher:	Bonn : Institute for the Study of Labor (IZA)
Subject:	Leistungsmotivation \| Wirtschaftspsychologie \| Verhaltensökonomik \| Theorie \| Intrinsische Motivation \| incentives \| contracts \| reciprocity \| social approval \| social norms \| intrinsic motivation

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Series:	IZA Discussion paper series ; 507
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	845578618 [GVK] hdl:10419/21434 [Handle]
Classification:	D64 - Altruism ; C91 - Laboratory, Individual Behavior ; J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
Source:	EconStor