Time to Stop? An Empirical Investigation on the Consequences of Canceling Monetary Incentives on a Digital Platform

Digital platforms commonly use monetary incentives to motivate users to perform specific tasks. Extant studies have shown the effects of introducing rewards on the outcomes of interest, such as participation and performance. However, little is known about the impact of canceling rewards and whether it is simply the reverse process of introducing monetary incentives. Our study examines the impact of canceling monetary incentives using a quasi-natural experiment on a large digital enterprise platform. Prior literature has documented that introducing monetary incentives based on contribution quantity increases participation (contribution quantity) but causes a decline in performance (contribution quality). In contrast, our empirical investigation reveals that canceling monetary incentives is not always the reverse process of introducing monetary incentives. In particular, the beneficial (direct) effect of introducing monetary rewards (i.e., increasing participation) is reversible: canceling the existing monetary incentives tends to reduce participation. However, the detrimental (side) effect of introducing monetary rewards (i.e., declining performance) is irreversible: the detrimental effect of declining performance becomes even stronger (i.e., causes a further decline in performance) after the cancelation of monetary rewards. Furthermore, we examine the heterogeneous responses of individuals with different self-motivation types and working competency levels after canceling monetary incentives, which highlight that the impact of canceling monetary incentives is not simply a reverse process of introducing monetary incentives. Our results provide important practical implications for the design of appropriate platform policies