Journal of Economic Perspectives—Volume 25, Number 4—Fall 2011—Pages 191–210
When and Why Incentives (Don’t) Work to Modify Behavior
Uri Gneezy, Stephan Meier, and Pedro Rey-Biel
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conomists often emphasize that “incentives matter.” The basic “law of behavior” is that higher incentives will lead to more effort and higher performance. Employers, for example, often use extrinsic incentives to motivate their employees. In recent years, the use of incentives in behavioral interventions has become more popular. Should students be provided with financial incentives for increased school attendance, for reading, or for better grades? Will financial incentives encourage higher contributions to public goods, like blood donations? Should programs to reduce smoking or to encourage exercise include a monetary incentive? These applications of incentives have provoked heated debate. Proponents of using incentives in behavioral interventions argue, for example, that monetary incentives can be helpful in getting people to study or exercise more. Opponents believe that using incentives in those areas could backfire, because extrinsic incentives may in some way crowd out intrinsic motivations that are important to producing the desired behavior. This paper proceeds by discussing some general aspects of how extrinsic incentives may come into conflict with other motivations. For example, monetary incentives from principals may change how tasks are perceived by agents. If incentives are not large enough, this change in perception can lead to undesired effects on behavior. In other cases, incentives might have the desired effects in the short term, but they still weaken intrinsic motivations. Thus, once the incentives are Uri Gneezy is Professor of Economics and Strategy, Rady School of Management, University of California–San Diego, La Jolla, California. Stephan Meier is Associate Professor, Columbia Business School, New York City, New York. Pedro Rey-Biel is Associate...