published in: European Economic Review, 2002, 46 (4-5), 687-724
During the last two decades economists have made much progress in understanding
incentives, 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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