Getting Incentives RightAs a follow-on to my recent post on mechanism design, I'd call attention to a paper (pdf) by Samuel Bowles of the Santa Fe Institute published in the June 20 issue of Science magazine.
Bowles reviews research into the circumstances in which incentives that appeal to self-interest may be counterproductive because they "undermine the moral values that lead people to act altruistically or in other public-spirited ways." Bowles identifies four such circumstances, namely when economic incentives:
- are taken as a signal that behaving selfishly is appropriate.
- gradually train people to adopt more self-interested motivations.
- degrade intrinsic motivation (discussed in these previous posts).
- convey a message of distrust, disrespect, and unfair intent on the part of the person(s) establishing the incentives.
Many of these unintended effects of incentives occur because people act not only to acquire economic goods and services but also to constitute themselves as dignified, autonomous, and moral individuals. Good organizational and institutional design can channel the material interests for the achievement of social goals while also enhancing the contribution of the moral sentiments to the same ends.Bowles concludes with the thought that researchers "are well on their way to constructing an economic psychology of the interplay of self-regarding and other-regarding motivation that may eventually enlighten mechanism design and public policy."