The W effect of incentives

Abstract

Abstract: Much of economic theory is based on the assumption that incentives and performance are positively related. In some cases, however, introducing extrinsic motivation might change the perception of the nature of activity and reduce the desired behavior (or increase the sanctioned one). I show that this puzzling contrast can be resolved if we consider the size of the incentives. A decrease in productivity is observed for small, but not for large incentives. A plot with incentives on the horizontal axis (such that fines are on the negative side and rewards on the positive), and performance on the vertical axis, results in a W-shaped graph. I use a proposer-responder game to demonstrate this “W effect. ” When proposers are asked to simply dictate allocation, they give the responder significantly more money than when the responder can counter with either a small reward or a small fine. When the retaliation option of the responder is large enough, however, proposers send significantly more generous offers than in all other treatments. Key words: Incentives; social norms; extrinsic and intrinsic motivation 1

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 55 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.