July 08, 2008
Economics meets social psychology on incentive theory
In another June 2008 American Economic Review article, Ellingsen and Johannesson introduce a standard concept from social psychology into a standard economic model of incentives, and find that it helps explain some well-known empirical puzzles.
This is not at all the first article in the economics literature that explores the role of social motivations, and the authors provide a good discussion of prior work.
"In Pride and Prejudice: The Human Side of Incentive Theory", Ellingsen and Johannesson add two motivational premises to the standard principal-aget model: people value social esteem, and the value they experience depends symmetrically on who provides the esteem: they value esteem more from those who they themselves esteem.
Their main result is to show how an incentive that otherwise would have a positive effect on behavior can have a negative effect for some people because of what the incentive tells the agent about the principal. For example, they suggest this as an explanation for "the incentive intensity puzzle that stronger material incentives and closer control sometimes induce worse performance" (p. 990).