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Continuous Preferences Can Cause Discontinuous Choices : an Application to the Impact of Incentives on Altruism

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  • Seabright, Paul

Abstract

Implementing incentive systems can sometimes backfire in practice: experimental evidence and folklore both suggest that offers of explicit rewards can expose surprising discontinuities in behaviour. This Paper models two such discontinuities that have been claimed by psychologists and experimental economists to constitute important exceptions to the standard economic theory of human motivation. The first (?type discontinuity?) is the observation of a discontinuity in the distribution across population types of values of the willingness to accept payment in return for performing certain (?civic?) actions, such as giving blood or performing public service. It is claimed that this distribution is bimodal, even discontinuous: many people have a zero WTA, many have a large positive WTA, but nobody has a small positive WTA. The second (?payment discontinuity?, also known as ?crowding-out?) is that people who are willing to perform certain actions for free will refuse to perform them for a low price, even if they subsequently agree to perform them if the price is raised enough. Civic virtue may, on this view, be crowded out by the introduction of explicit incentives; people may stop doing things they were previously prepared to do without reward. The Paper shows that both phenomena may be observed as a result of individuals? acting in a first period of public service in the knowledge that the terms of their action signal their type, and their type will affect a process of assortative matching in a second period. Type Discontinuity, but not Payment Discontinuity, is observed in a signaling game in which individuals announce the prices at which they will perform a civic action. Payment Discontinuity, but not Type Discontinuity, is observed in a screening game in which individuals have only a binary participation decision available to signal their type. The proportion of individuals participating when rewards are zero can be higher than when rewards are positive but small.
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  • Seabright, Paul, 2004. "Continuous Preferences Can Cause Discontinuous Choices : an Application to the Impact of Incentives on Altruism," IDEI Working Papers 257, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:1852
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    2. Bowles, Samuel & Hwang, Sung-Ha, 2008. "Social preferences and public economics: Mechanism design when social preferences depend on incentives," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1811-1820, August.
    3. Linardi, Sera & McConnell, Margaret A., 2011. "No excuses for good behavior: Volunteering and the social environment," Journal of Public Economics, Elsevier, vol. 95(5), pages 445-454.
    4. Jean Tirole & Roland Bénabou, 2006. "Incentives and Prosocial Behavior," American Economic Review, American Economic Association, vol. 96(5), pages 1652-1678, December.
    5. Tore Ellingsen & Magnus Johannesson, 2008. "Pride and Prejudice: The Human Side of Incentive Theory," American Economic Review, American Economic Association, vol. 98(3), pages 990-1008, June.
    6. Canoy Marcel & Veld Daan L. in ’t, 2014. "How to Boost the Production of Free Services: In Search of the Holy Referee Grail," Man and the Economy, De Gruyter, vol. 1(1), pages 79-92, June.
    7. Joan Costa-Font & Mireia Jofre-Bonet & Steven T. Yen, 2013. "Not All Incentives Wash Out the Warm Glow: The Case of Blood Donation Revisited," Kyklos, Wiley Blackwell, vol. 66(4), pages 529-551, November.
    8. Schnedler, Wendelin & Vanberg, Christoph, 2014. "Playing ‘hard to get’: An economic rationale for crowding out of intrinsically motivated behavior," European Economic Review, Elsevier, vol. 68(C), pages 106-115.
    9. Carl Mellström & Magnus Johannesson, 2008. "Crowding Out in Blood Donation: Was Titmuss Right?," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 845-863, June.
    10. Dan Ariely & Anat Bracha & Stephan Meier, 2009. "Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially," American Economic Review, American Economic Association, vol. 99(1), pages 544-555, March.
    11. Wildman, John & Hollingsworth, Bruce, 2009. "Blood donation and the nature of altruism," Journal of Health Economics, Elsevier, vol. 28(2), pages 492-503, March.
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    More about this item

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D10 - Microeconomics - - Household Behavior - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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