When and Why Incentives ( Don ’ t ) Work to Modify Behavior

E 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 fi nancial incentives for increased school attendance, for reading, or for better grades? Will fi nancial 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 backfi re, 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 confl ict 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 When and Why Incentives (Don’t) Work to Modify Behavior