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The Pied Piper: Prizes, Incentives, and Motivation Crowding-in

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“It is clear that the reward lies in the action itself, and that the power of the honorable to attract the minds of men is immense: Its beauty floods our minds and sweeps us along, enchanted with wonder at its brilliance and splendor.”

(Seneca, De Beneficiis 22.2).

He advanced to the council-table:

And, “Please your honors,” said he, “I’m able,

By means of a secret charm, to draw

All creatures living beneath the sun,

That creep or swim or fly or run,

After me so as you never saw!”

(Robert Browning, The Pied Piper of Hamelin 1842).

Abstract

In mainstream business and economics, prizes such as the Presidential Medal of Freedom are understood as special types of incentives, with the peculiar features of being awarded in public, and of having largely symbolic value. Informed by both historical considerations and philosophical instances, our study defines fundamental theoretical differences between incentives and prizes. The conceptual factors highlighted by our analytical framework are then tested through a laboratory experiment. The experimental exercise aims to analyze how prizes and incentives impact actual individuals’ behavior differently. Our results show that both incentives (monetary and contingent) and prizes (non-monetary and discretional rewards) boost motivation to perform if awarded publicly, but only prizes crowd in motivation promoting virtuous attitude.

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Notes

  1. The “ideology of incentives” (Bruni 2015) goes well beyond the boundaries of economic relations. Grant (2011), who conducted the most systematic research on the history and nature of incentives, offers a vivid repertoire of situations in which incentives are applied and how: “express traffic lanes are set aside during rush hour for cars with more than two passengers. A will stipulates that a daughter will inherit only if she agrees to be a stay-at-home mom. West Virginia pays married couples on welfare an extra $100 per month, funded by a federal program to promote marriage. […] Legislators in South Carolina discuss a proposal to reduce prison sentences for prisoners who donate organs. A soup kitchen feeds the homeless only if they attend a church service first. […] A state legislator suggests paying poor women $1000 to have their tubes tied while others debate making welfare conditional on the use of the Norplant contraceptive device” (p. 1).

  2. This is not to neglect that numerous economists are aware of the complexities and tradeoffs between the use of different types of incentives. For example, see Gneezy et al. (2011), Bowles and Polania-Reyes (2012) and Ashraf and Bandiera (2018) for surveys.

  3. The agency model is a standard model in economics as well as in political sciences. It captures the strategic interaction in which an agent (employee/politician/CEO) is able to make decisions on behalf of the principal (employer/voter/shareholder).

  4. This can go to the extreme where a prize is not awarded if some extrinsic motivation (even self-image) can be traced. For example, this is the case in the canonization process for sainthood within the Catholic Church. Among the requirements to be proclaimed a saint, the candidate’s motivation must be proven to be completely intrinsic. The candidate must have never acted for the purpose of becoming a saint because it would be a sign of the lack of the necessary virtue of humility, and the heroic virtues are the pre-condition to be proclaimed a saint; see the Apostolic Constitution Divinus Perfectionis Magister (January 25, 1983).

  5. Other few quoted examples of the incentive ideology are “Incentives are the essence of economics” (Prendergast 1999, p. 7); “Fame, power, reputation, sex, and love are all important incentives. Economists even think that benevolence responds to incentives” (Cowen and Tabarrok 2015, p. 2); “The basic ‘law’ of behavior is that higher incentives will lead to more effort and higher performance” (Gneezy et al. 2011, p. 1).

  6. See also Manno (1831): “Since in Latin incentivus, whether applied to aerophones, such as flutes or trumpets, signified the sound (incentivum) of those instruments, it was later employed to express those aforementioned incitements and provocations. At that time, one intrepid orator came to realize that, being that man was as aroused by the voice of passion as soldiers were by the sound of trumpets, the transposition of tuba incentiva from the battlefield to humans’ hearts was a mere transliteration of a comparison into a metaphor.”

  7. Among its different meanings, the word “praemium” in classical Latin also mean reward, prize, recompense, gift (Cicero spoke of honores et praemia bene de re publica meritorum et merentium). The Latin–German dictionary by Georges Karl (1998) specifies that this third meaning of praemium is intended as the opposite of “punishment.” A particular contractual dimension appears to be implied by the concept of prize; the medieval-patristic dictionary by Blaise and Chirat (1954) reports two meanings of the word praemium: (i) recompense, reward and (ii) gift, benefit (of redemption).

  8. They are willing to accept to perform the task for a less generous remuneration.

  9. This is a fairly standard task used in lab experiments. For a discussion see also Erkal et al. (2018). For a discussion of the use of lab experiments to understand issues related to effort and labor, see Charness and Kuhn (2011).

  10. Three subjects (all women) who stated that they were over 45 years of age were excluded.

  11. Admittedly, we do not have a good way to control for learning, as this would require additional treatments with no rewards introduced or withdrawn in any phase.

  12. No systematic study has yet focused on the asymmetric adoption of publicity-based reward practices in for-profit companies and non-profit organization. Despite this gap in the literature, a comparative analysis of studies focusing on incentive/prize practices implemented in for-profit companies and non-profit organizations (see Oster 1998; Luthans 2000; Rodwell and Teo 2004; Theuvsen 2004; OpportunityKnocks 2011; Ben-Ner et al. 2011; Speckbacher 2013; Ben-Ner and Ren 2015; DeVaro et al. 2015; Gallus and Frey 2016; Frey and Gallus 2017a, b; WorldatWork 2018a, b) leads to highly suggestive evidence. Monetary incentives are unanimously considered essential in business companies, while public recognition represents a key element for staff retention in non-profit organizations.

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Acknowledgements

We thank the Editor Julie A. Nelson, Jonathan Baron, Avner Ben-Ner, Anja Bodenschatz, Philip Brookins, Robert Dur, Christoph Engel, Marco Fabbri, Miloš Fišar, Bruno Frey, Ruth Grant, Werner Güth, Susanne Neckermann, Rainer Michael Rilke, Lorenzo Sacconi, Robert Sugden, Gari Walkowitz, and two anonymous referees for their useful comments. We thank the participants at the 2016 U.I. Sophia Workshop in Economics and Management; The 2016 Annual Conference of the Italian Society of Law and Economics; The 2017 “Pierluigi Porta” Memorial Workshop; The Behavioral and Experimental Economics Workshop at LUISS University for comments. Financial support from the University of Cologne (DFG Research Unit FOR 1371: Incentives in Firms: Compensation, Ethics, and Behavior), LUMSA University, and the University of Cagliari is gratefully acknowledged.

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  1. LUMSA University, Rome, Italy

    Luigino Bruni & Matteo Rizzolli

  2. University of Cagliari, Cagliari, Italy

    Vittorio Pelligra

  3. CRENoS, Cagliari, Italy

    Vittorio Pelligra

  4. Masaryk University, Brno, Czech Republic

    Tommaso Reggiani

  5. IZA Institute of Labor Economics, Bonn, Germany

    Tommaso Reggiani

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Bruni, L., Pelligra, V., Reggiani, T. et al. The Pied Piper: Prizes, Incentives, and Motivation Crowding-in. J Bus Ethics 166, 643–658 (2020). https://doi.org/10.1007/s10551-019-04154-3

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