Abstract
A central tenet of economics is that individuals respond to incentives. For psychologists and sociologists, in contrast, rewards and punishments are often counterproductive, because they undermine "intrinsic motivation". We reconcile these two views, showing how performance incentives offered by an informed principal (manager, teacher, parent) can adversely impact an agent's (worker, child) perception of the task, or of his own abilities. Incentives are then only weak reinforcers in the short run, and negative reinforces in the long run. We also study the effects of empowerment, help and excuses on motivation, as well as situations of ego bashing reflecting a battle for dominance within a relationship.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 489-520 |
| Number of pages | 32 |
| Journal | Review of Economic Studies |
| Volume | 70 |
| Issue number | 3 |
| DOIs | |
| State | Published - Jul 2003 |
| Externally published | Yes |
Funding
Last, when θ2 = θ2H the principal faces a tradeoff if z(∅) < z(θ2H). Disclosing the good news raises incentives for effort, but emboldens the agent in the ex post negotiation. It can be shown that depending on the values of the parameters, the principal may or may not disclose θ2 = θ2H in equilibrium. ‖ Acknowledgements. The first version of this paper was titled “Self-Confidence and Social Interactions”. We are grateful for helpful comments and discussions to Philippe Aghion, Mark Armstrong, Isabelle Brocas, Daniel Gilbert, Robert Lane, Marek Pycia, Gérard Roland, Julio Rotemberg, Ilya Segal, Anton Souvorov, participants at the Franqui conference on “The Economics of Contracts” (Brussels, 1999), participants at seminars at Harvard and Paris, and at the ISNIE 2002 Congress (Boston) and three anonymous referees. Bénabou gratefully acknowledges financial support from the National Science Foundation (SES-0096431) and the MacArthur Foundation, as well as the hospitality of the Institute for Advanced Study over the academic year 2002–2003.
ASJC Scopus subject areas
- Economics and Econometrics