Abstract
Using a simple decision-theoretic approach, we formalize how agents with different kinds of intrinsic motivations react to the introduction of monetary incentives. We contend that empirical results supporting the existence of a crowding-out effect under various legal procedures hide a more complex reality, where some individuals contribute thanks to these additional monetary incentives while others reduce their contributions. Our approach allows us to study the theoretical ability of the self selection mechanism (Mellström and Johannesson in J Eur Econ Assoc 6:845–863, 2008; Beretti et al. in Kyklos 66(1):63–77, 2013) to reduce the likelihood to backfire against the cause it is meant to promote. This mechanism consists of a monetary payment for the pro-social behavior and it offers agents the choice to either keep the money for themselves or to direct it to a charity. We show that this legal procedure dominates others more classical procedures because it taps wisely into the motivational heterogeneity of individuals. It uses a self-selection mechanism to match adequate monetary incentives with individuals’ types regarding intrinsic motivations. It may even turn a situation subject to crowding-out into a crowding-in outcome.
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Notes
It was an idea present in the air even before it has been studied in scientific articles. One of the authors of this article has once been offered a similar mechanism by a scientific journal, early in the 2000s. If his evaluation report was delivered in due time, he would be offered the choice of a payment either for himself or for an NGO caring for children in India.
For instance, let us consider that intrinsically motivated donators are those who enjoy donating for its own sake. If we study experimental results of dictator games, we get a whole range of individuals from those giving nothing to those giving their own endowments.
Agents have, possibly, very different exogenous incomes. Due to linearity assumptions in our model, this source of heterogeneity plays no role on agents’ incentives. In a more complex model one can expect that wealthier (resp., poorer) people can be more interested by signaling their qualities (resp., gaining some money) than by the relative insignificant money incentive. The income dimension is also present in some legal incentives. For instance, in Finland speeding fines are linked to income, with penalties calculated on daily earnings. In 2015, a Finnish speeding millionaire was fined about 54.000 euros for being caught doing 103km/h in an area where the speed limit is 80km/h (https://www.bbc.com/news/blogs-news-from-elsewhere-31709454).
Experienced utility functions would rather incorporate altruism, and capture the public good collectively created by inserting the others’ aggregated contribution as an argument in utility functions of the kind \(U^{i}(x_{i},x_{-i},f).\)
The parameter \(a_{i}\) could also represent the degree of altruism or reciprocity.
In the case of organ donation, it has been argued that paying or more precisely compensating some expenses related to organ donation can support the donator’s decision, but increasing the payment size by considering organs as a commodity activates a repugnance effect (Capron and Danovitch 2014; see also Roth 2007). In another context, the Resource Guide to U.S. Foreign Corrupt Practices Act published in November 2012 (http://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf) by the United States Department of Justice and the Securities and Exchange Commission stipulates regarding payments that “size can be telling, as a large payment is more suggestive of corrupt intent to influence a non-routine governmental action” (emphasis added).
Moreover, in addition to obvious intuitive reasons based on empirical evidence, we argue that people enjoy the possibility of choosing by themselves, even at a cost (Frey and Stutzer 2005).
For instance, Tan and Low (2011) showed that subtle changes that do not make sense from an economic perspective change people’s perceptions and behaviours. They explain that the words used to describe incentives for organs donors can dramatically change people’s perceptions and subsequent behaviours. They cite the fact that the Singapore government paid a great deal of attention to the words used to describe these incentives (by avoiding the word ‘payment’ and preferring ‘reimbursement’ to ‘defray the costs or expenses’ associating with organ donation) in order to avoid crowding out prosocial motivations.
We assume that offering choice does not affect parameters in utility functions. Nevertheless, a natural extension to our contribution will be to consider how the value of t and the shape of the moral repugnance function would be affected if individuals themselves can choose between the two options. Relaxing these these assumtions will considerably complicate the analysis and is beyond the scope of your analysis.
Even if it is realistic, our assumption overlooks a possible information effect which appears when the payment offered acts as a signal that the cause is serious and worth-supporting.
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Beretti, A., Figuières, C. & Grolleau, G. How to turn crowding-out into crowding-in? An innovative instrument and some law-related examples. Eur J Law Econ 48, 417–438 (2019). https://doi.org/10.1007/s10657-019-09630-9
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DOI: https://doi.org/10.1007/s10657-019-09630-9