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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Psychological Foundations of Incentives
Organization Unit
Authors
  • Ernst Fehr
  • Armin Falk
Language
  • English
Institution University of Zurich
Series Name Working paper series / Institute for Empirical Research in Economics
Number No. 95
ISSN 1424-0459
Date 2001
Abstract Text During the last two decades economists have made much progress in understandingnincentives, contracts and organisations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves.
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