Replacing Trust with Control: A Field Test of Motivation Crowd Out Theory

Abstract

Results in behavioural economics suggest that material incentives can crowd out motivation if agents are mission‐oriented rather than self‐interested. We test this prediction on a sample of non‐profit organisations in Sweden. Traditionally, contracts with the main principal (the Swedish foreign aid agency) have been based on trust and self‐regulation. We designed a randomised policy experiment, effectively replacing the trust‐based contract with an increased level of monitoring from the principal. Overall, using both self‐reported and observed measures of outreach, we find that the intervention increased outreach, reduced expenditures and reduced the number of financial irregularities.

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