Cited by 1,240Experimental Behavioral Economics StudiesDecision-Making and Behavioral EconomicsEconomic Theory and Institutions

The DOI matches its Crossref record; 76 of the 94 references it cites were found in a registry or an index; 1 of the 129 sources its claims cite were checked for support.

Psychological foundations of incentives

Open access
Fehr, Ernst, Falk, Armin·2002·European Economic Review

Overview

AI snapshot

Written from the paper’s full text.

TL;DR

The paper argues that economics' narrow self-interest model misses powerful non-pecuniary motives—reciprocity, social approval, and task-specific intrinsic motivation—that interact with material incentives and can make incentives backfire. It reviews experimental and field evidence showing that explicit incentives may reduce voluntary cooperation, while reciprocity and social approval can themselves generate strong incentives.

Key findings

  • Explicit incentives can undermine voluntary cooperation: in Fehr and Gächter's gift-exchange experiment, adding a negatively framed fine reduced average effort below the enforceable level of e = 0.4; positively framed bonuses elicited more cooperation than fines but less than no explicit incentive. In Fehr and Rockenbach's trust-game variant, back-transfers as a share of the tripled transfer were 30.3% when the incentive was used, 47.6% when available but not used, and 40.6% when not available.
  • Reciprocity can create material incentives: giving employers a reward/punishment opportunity decreased shirking from 83% to 26% of trades, increased exact provision of desired effort from 14% to 36%, increased overprovision from 3% to 38%, raised average effort from e = 0.37 to e = 0.65, and increased aggregate monetary payoff by 40%. In Fehr, Klein and Schmidt's multitask experiment, the bonus contract was chosen in 81% of cases and average effort was almost identical across tasks, fluctuating around e1 = e2 = 6.
  • Social approval affects behavior and can interact perversely with fines: Rege and Telle found public-good contributions of 34% of endowment in the anonymous baseline and twice as high when contributions were observable. Gneezy and Rustichini's kindergarten fine roughly doubled late pickups from week 7 onward, and late pickups remained roughly twice the baseline after the fine was removed; in their volunteer-collection experiment, letting children keep 1% of donations reduced the amount collected by 36%, and keeping 10% still reduced it by 8%.
  • The psychological literature on crowding out of intrinsic motivation is large—Deci, Koestner and Ryan's meta-study covers 128 experiments—but the paper argues its economic relevance has yet to be established. Deci (1971) found treatment subjects spent 50 seconds less on puzzles in phase 3 than phase 1, while control subjects spent 28 seconds more, but the paper notes alternative explanations such as satiation, disappointment, and signaling.

Methods

  • Design: This is a Schumpeter Lecture/review, not a new primary experiment; it synthesizes experimental and field evidence on how reciprocity, social approval, and task-specific intrinsic motivation interact with economic incentives.
  • Data or sample: It draws on prior laboratory experiments (gift exchange, public goods, trust games), field experiments (physicians, kindergarten parents, Israeli high-school volunteers), and a meta-analysis of 128 experiments; populations include students, Costa Rican CEOs, and other subject pools.
  • Main analysis: Narrative and theoretical synthesis comparing treatment effects across studies, with figures reproduced from cited experiments; no new statistical model or original dataset is reported.

Limitations

  • Stated: The arguments about social approval are described as "quite preliminary and speculative," with little known in the area.
  • Stated: The case for the economic relevance of crowding out of intrinsic motivation "has yet to be established"; ambiguities remain about disappointment versus crowding out, signaling effects, satiation, efficiency consequences, and interactions with implicit incentives.
  • Evident from the text: The paper is a lecture/review rather than a systematic meta-analysis for most claims, and it relies on heterogeneous experiments with different designs, populations, and settings; external validity is only partially addressed, for example through the CEO replication.

Model-written summary. Check it against the paper before relying on it.

Integrity signals

Registry

Crossref · 10.1016/s0014-2921(01)00208-2

Cites

76 of 76 references verified0 citation errors · 0 not checkable

Statistics

Nothing to recompute.

Verification

Claims the paper makes

137 Own interpretation · 98 Not checked yet · 10 No basis given · 3 Own result · 1 Partly supported · 1 Sources not found · accuracy not yet measured

Verify all 127 references — free account

Show all 162 claims

  • It may state two separate claims as one. 61
  • Probably not a substantial claim. 29
  • The quote only partly states this claim. 1
88 of 88
  • The authors state this as an assumption.

    Reciprocity is frequently quantitatively more important than other types of social preferences and has particularly important consequences in strategic interactions.

    “This does not mean that we believe that other types of social preferences like, e.g., altruism or spitefulness, are unimportant. It reflects, however, our belief that reciprocity is frequently quantitatively more important than other types of social preferences and that it has particularly important consequences in strategic interactions.”
  • The paper relies on this without support.

    The kindness or hostility of an action depends on a reference point.

    “The notion of a kind or a hostile action inevitably depends on a reference point”
  • The paper relies on this without support.

    In the negative frame, the total compensation in case of nonshirking is the natural reference point.

    “In the negative frame the total compensation in case of nonshirking is the natural reference point”
  • The paper relies on this without support.

    In the positive frame, the base wage is the natural reference point.

    “In the positive frame the base wage is the natural reference point”
  • The paper relies on this without support.

    Most subjects consider shirking unfair if the contract offered the agent a generous share of the surplus.

    “most subjects are likely to consider shirking as unfair if the contract offered the agent a generous share of the surplus”
  • The paper relies on this without support.

    In most employment relations, employees have to perform several tasks and it is often not possible to target explicit incentives to all tasks because of measurement and verifiability problems.

    “In most employment relations the employees typically have to perform several tasks and because of measurement and verifiability problems it is often not possible to target explicit incentives to all tasks.”
  • The paper relies on this without support.

    Many contracts are deliberately left vague and incomplete, specifying important obligations in vague terms and not tying monetary payoffs to performance measures.

    “In reality many contracts frequently specify important obligations of the contracting parties in fairly vague terms, and they do not tie the parties' monetary payoffs to measures of performance that would be available at a relatively small cost.”
  • The paper relies on this without support.

    People engage in many tasks and activities because they enjoy them.

    “There is no doubt that people engage in many tasks and activities because they enjoy them.”
  • The paper relies on this without support.

    Many economic activities are intrinsically rewarding; people derive pleasure from the activity, and over some range pleasure increases with activity level.

    “many economic activities are, i.e., people directly derive pleasure from the activity and, over some range, the pleasure increases with increases in the activity level.”
  • The paper relies on this without support.

    Parents picking up children late violates a legitimate rule and faces disapproval, which is a nonpecuniary cost.

    “if the parents pick up their children too late they violate a legitimate rule. As a consequence, the parents face the disapproval of the principal and of the employees of the Kindergarten, which can be thought of as the nonpecuniary cost for being late.”
  • The authors state this as an assumption.

    Individuals do not have perfect knowledge about the reasons for performing a task.

    “A crucial assumption of self-perception theory is that individuals do not have perfect knowledge about the reasons for performing a task.”
  • The authors state this as an assumption.

    People have a psychological need for self-determination and competence.

    “Cognitive evaluation theory, on the other hand, assumes that people have a psychological need for self-determination and competence.”
  • The authors state this as an assumption.

    Individual i's level of compliance with a morally legitimate rule is higher the higher the average compliance of others.

    “In Figure 6 we assume for simplicity that individual i 's level of compliance with a morally legitimate rule (i.e., the relative frequency of obeying the rule in a given time interval) is the higher the higher the average compliance of the others.”
  • The paper relies on this without support.

    In economic contexts, individuals typically expect some form of monetary compensation, and monetary rewards are the norm.

    “as a rule, individuals expect some form of monetary compensation in economic interactions.”
    “since in most cases some form of monetary reward prevails in economic contexts”
  • The paper relies on this without support.

    Experience with children shows that they quickly feel entitled to rewards, even if given rarely, and become frustrated if they do not receive expected rewards.

    “Experience with children shows that they quickly feel entitled to rewards, even if they are given them very rarely, and if they don't receive expected rewards they are frustrated.”
  • The paper relies on this without support.

    There are many social interactions for which monetary compensation is deemed inappropriate.

    “there are many social interactions for which monetary compensation is deemed inappropriate (e.g. in schools and families).”
  • The paper relies on this without support.

    From an economic viewpoint, it is the total sum of incentive effects that matters.

    “from an economic viewpoint, it is the total sum of incentive effects that matters.”
17 of 17

Claims other papers make about this one

Each is checked against this paper’s own text: does it say what the citing paper says it does?

Self-check

Percentages, sums and reported differences re-computed from the paper’s own numbers.

Each contradiction between two passages listed here was confirmed by an independent check.

3 of 3

Citations

Cites

Show all 94 references

Research works printed but not linked: 10

  1. Akerlof, 1980, A theory of social custom, of which unemployment may be one consequence, Quarterly Journal of Economics, 37, 291
  2. Bewley, 1995, A depressed labor market as explained by participants, American Economic Review, Papers and Proceedings, 85, 250
  3. Camerer, 1997, Labor supply of New York city cab drivers: One day at a time, Quarterly Journal of Economics, 111, 408
  4. Fehr, E., Fischbacher, U., forthcoming. Why social preferences matter – the impact of non-selfish motives on competition, cooperation, and incentives, Economic Journal, in preparation.
  5. Frey, 1997, The cost of price incentives: An empirical analysis of motivation crowding out, American Economic Review, 87, 746
  6. Lindbeck, 1997, Incentives and social norms in household behavior, American Economic Review, Papers and Proceedings, 87, 370
  7. Moffit, 1983, An economic model of welfare stigma, The American Economic Review, 73, 1023
  8. Rabin, 1993, Incorporating fairness into game theory and economics, American Economic Review, 83, 1281
  9. Rainwater, L., 1979. Stigma in income-tested programs. Paper Delivered at Conference on Universal vs. Income Tested Programs, University of Wisconsin, Madison.
  10. Segal, 1999, Tit for tat: Foundations of preferences for reciprocity in strategic settings, UCSD Economics Discussion Paper 99-10

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Metadata

Authors
Fehr, E., & Falk, A.
Affiliations
University of Zurich (CH)
Corresponding author
Fehr, Ernst
Venue
European Economic Review
Publisher
Elsevier BV
Published
2002-05
Volume
46
Issue
4-5
Pages
687-724
ISSN
0014-2921 (ISSN-L)
OpenAlex
W2551486737
Cited by
1,240
References
94
Citations by year
2026: 10 · 2025: 18 · 2024: 27 · 2023: 22 · 2022: 30 · 2021: 27 · 2020: 29 · 2019: 67 · 2018: 48 · 2017: 53 · 2016: 60 · 2015: 68 · 2014: 69 · 2013: 70 · 2012: 88
FWCI
184.84
Type
journal article
Language
en
Open access
Locations
  • European Economic Review (publishedVersion)
  • Zurich Open Repository and Archive (University of Zurich) (acceptedVersion, other-oa)
  • RePEc: Research Papers in Economics (submittedVersion)
  • OpenGrey (Institut de l'Information Scientifique et Technique) (submittedVersion)
  • Econstor (Econstor) (submittedVersion)
  • PsyDok Dokumentenserver für die Psychologie (Leibniz-Zentrum für Psychologische Information und Dokumentation) (submittedVersion)
  • Repository for Publications and Research Data (ETH Zurich) (submittedVersion, other-oa)
  • Psychology Archives
  • ETH Zürich Research Collection
  • Zurich Open Repository and Archive (University of Zurich)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Experimental Behavioral Economics Studies
  • Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Theory and Institutions
Keywords
incentives, motives, reciprocity, social disapproval, financial incentives, backfire effect, compliance, contracts, organizations, behavioral economics

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