Friday, February 12, 2016

Incentives, intrinsic motivation and career decisions

In my classes on public economics I introduce the topic of incentives in public sector organizations, based on work by Dixit, Besley and Ghatak, among others. I start as a benchmark from a canonical agency model where there is one dimension of effort and the determinants of the optimal power of incentives are the cost of effort, noise in the measurement of effort and risk aversion. Then I extend the model to multitasking and several principals, to emphasize some of the difficulties typical of the public sector, which call quite generally for less powered incentives. Then attention turns to intrinsic motivation, and recent research points to the social sources of this intrinsic motivation. A key issue is the possibility of extrinsic monetary incentives crowding out intrinsic motivation. When this is interpreted as caused by social pressures (like status or socially determined self-image), then one example is extrinsic incentives due for example to competition triggering more selfish behavior by some workers, which become imitated by others. In a way, this is a failure of the conditions of the first welfare theorem: asymmetric information (the agency problem) prevents competition from achieving social efficiency because in this case socially desirable behavior is disincentivized. In a related way, the possibility of crowding out may be similar to multitasking, but with an individual interpretation. All of us have intrinsic motivation but also prefer more to less money. Then our different selves can be interpreted as several tasks, and when one of the personas or selves becomes more salient, that makes us neglect other parts of our personality. If we do a bit of introspection, it is easy to realize that certainly a lot of our intrinsic motivation comes from how we see ourselves or how we believe that the others see oneself. That is clear to me in career decisions. When we receive a proposal to do something new (in our job or in a a new job) a key issue that comes to our mind is how that affects our self-image. From the point of view of principals or employers, it is crucial them to select personnel with the right social norms determining this self-image.

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