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Abstract
The serious side of the Economics Made Fun genre stems from its mantra that people respond to incentives. As Levitt and Dubner put it, economists typically believe they can solve virtually all problems by designing a proper incentive scheme. What is not always sufficiently appreciated is that Levitt and Dubner argue that economists nowadays grant the existence of social and moral incentives, besides the standard economic ones. A glance at the relevant literature in academic economics confirms this. Although there is an ongoing debate in academic economics about the necessity and desirability of introducing social preferences in utility functions and also about the relative strengths of various sorts of preferences, economists increasingly take the existence of various sorts of incentives and motivations into account. The recognition of non-monetary incentives and of non-economic motivation makes the economic approach to policy making more comprehensive and flexible. But since there might be various kinds of interaction effects between different sorts of incentives and different sorts of motivations, it also vastly complicates devising optimal policy schemes. What Levitt and Dubner say almost in passing about the “strange nature” of incentives also reflects the present state of art in academic economics: while it is increasingly acknowledged that different sorts of incentives and different sorts of motivations might interact in various ways, little is still known about when, under what conditions, the one or the other interaction effect obtains. Yet knowledge of the latter is required to devise optimal incentive schemes. Thus even though Levitt and Dubner might be right that economists are quite confident that they can solve virtually all problems by devising optimal incentive schemes, it seems the limited understanding of incentives, motivations and their various interaction effects in present-day academic economics falls short of bolstering this confidence.
Acknowledgements
Thanks to N. Emrah Aydinonat and a referee for their comments on an earlier draft. The usual caveat applies.
Notes
1. My selection of the economic literature discussed is inevitably incomplete, of course. I cannot even claim that my selection presents a representative sample of the extant literature. But as will become clear below, this does not pose a problem for what I argue, namely that there is not yet a profound shared understanding in economics of ‘the strange nature’ of incentives.
2. What Levitt and Dubner (Citation2005) and other economists say about concepts such as ‘social incentives’ and ‘moral incentives’ leaves room for slightly different interpretations than the one I put forward. Indeed, generally speaking the writings of economists do not seem to excel in terms of conceptual clarity and precision. I claim no more than that my interpretations are charitable and are consistent with the available textual evidence.
3. In Vromen (Citation2009), I suggest to reserve ‘incentive’ for something external to agents. As we shall see below, this seems to be in line with how most economists conceive of incentives.
4. Note that people might feel good about themselves when they help others because they have complied with their own moral norms, that is not because they have complied with prevailing social norms. Thus a finer grained distinction might (and for some purposes perhaps should) be made between ‘because it makes you look good’ and ‘because it makes you feel good’.
5. The distinction between sympathy and commitment discussed by Sen (Citation1977) comes to mind here. Impure altruism would be driven by sympathy, whereas pure altruism would be driven by commitment.
6. Note that one way to read Levitt and Dubner's discussion of the Israeli day-care center is that late coming was discharged of its moral content when the fine for late coming was introduced.
7. Kaplow and Shavell (Citation2007) tell a similar story about associating acts with positive external effects with proportional intensity of feelings of virtue.
8. I would not analyze the relation between trying to promote a favorable social image and trying to avoid doing things one would be ashamed about here, as this is not necessary for my argument.
9. At least they would not immediately lead to the predicted behavioral responses. Arguing along the lines of Becker (Citation1962), it could be maintained that they would eventually lead to the predicted changes nonetheless, because of their effects for the agents' opportunity sets.
10. Experimental findings as the ones reported in Dana, Daylian and Dawes (Citation2006) and Dana, Weber and Kuang (Citation2007), in which subjects are given the opportunity to conceal what they choose for others, seem to point in this direction.
11. Elster (Citation2007) holds a similar view on the difference between social and moral norms.
12. In Vromen (Citation2012a), I call the former effect ‘non-standard price effects’ and the latter, as one of the possible explanations of this effect, the ‘crowding-out hypothesis’.
13. This runs counter to Falk and Kosfeld (Citation2006), e.g., who argue that control by employers is perceived as a sign of distrust by employees, leading to less rather than more effort on their part.
14. This also raises the issue of whether social image should be a separate argument in the utility function next to ‘greed’ if social image is valued only instrumentally as a means to increase wealth. Further discussion of this issue has to wait for another occasion.
15. If moral motivation evolved biologically, as Bowles and Gintis (Citation2011) argue, this might explain the sort of price-responsiveness of moral motivation Bowles and Gintis allude to (although this would strictly speaking amount to mistaking functionality for instrumentality; see Vromen (Citation2012b) for further discussion).
16. This seems to be similar to ‘expressivism’ in the legal literature, which holds that laws should not be seen as just incentives: with their laws, legislators express what they take to be the values and norms of society. See Stout (Citation2011) and Bénabou and Tirole (Citation2011) for interesting discussions of expressivism.
17. Norms-based accounts, such as the ones favored by Bicchieri (Citation2006) and Guala and Mittone (Citation2009), also seem to assert something similar.
18. Ariely (Citation2010) seems to agree.