Incentives and Prosocial Behavior

TLDR: This paper developed a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect, and analyzed the socially optimal level of incentives and how monopolistic or competitive sponsors depart from it.

Abstract: We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or imagerelated) create doubt about the true motive for which good deeds are performed and this “overjustification effect” can induce a partial or even net crowding out of prosocial behavior by extrinsic incentives. We also identify the settings that are conducive to multiple social norms and more generally those that make individual actions complements or substitutes, which we show depends on whether stigma or honor is (endogenously) the dominant reputational concern. Finally, we analyze the socially optimal level of incentives and how monopolistic or competitive sponsors depart from it. Sponsor competition is shown to potentially reduce social welfare.

Figures

Figure 1: the effects of rewards on the pool of participants

Figure 3a: unique equilbrium Figure 3b: multiple equilbria

Figure 2a: varying (with 0). The straight line corresponds to 0 (no reputation concern).

Full text

NBER WORKING PAPER SERIES
INCENTIVES AND PROSOCIAL BEHAVIOR
Roland Bénabou
Jean Tirole
Working Paper 11535
http://www.nber.org/papers/w11535
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
August 2005
We thank for useful comments George Akerlof, Roland Fryer, Timur Kuran, Bentley MacLeod, Tom Romer,
Armin Falk, participants at various seminars and conferences and three anonymous referees. We are
especially indebted to Ian Jewitt for valuable suggestions. Bénabou gratefully acknowledges support from
the John Simon Guggenheim Memorial Foundation in 2004 and from the National Science Foundation. The
views expressed herein are those of the author(s) and do not necessarily reflect the views of the National
Bureau of Economic Research.
©2005 by Roland Bénabou and Jean Tirole. All rights reserved. Short sections of text, not to exceed two
paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given
to the source.

Incentives and Prosocial Behavior
Roland Bénabou and Jean Tirole
NBER Working Paper No. 11535
August 2005
JEL No. D64, D82, H41, Z13
ABSTRACT
We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and
greed with concerns for social reputation or self-respect. Rewards or punishments (whether material
or image-related) create doubt about the true motive for which good deeds are performed and this
"overjustification effect" can induce a partial or even net crowding out of prosocial behavior by
extrinsic incentives. We also identify settings that are conducive to multiple social norms and those
where disclosing one's generosity may backfire. Finally, we analyze the choice by public and private
sponsors of incentive levels, their degree of confidentiality and the publicity given to agents'
behavior. Sponsor competition is shown to potentially reduce social welfare.
Roland Bénabou
Department of Economics
Woodrow Wilson School
Princeton University
Princeton, NJ 08544
and NBER
rbenabou@princeton.edu
Jean Tirole
Université des Sciences Sociales
Manufacture des Tabacs
Aile Jean-Jacques Laffont
Accueil MF 404
21, allée de Brienne
F-31000 Toulouse
FRANCE
tirole@cict.fr

P eople commonly engage in activities that are costly to themselves and mostly benefit others. They
volunteer, help strangers, vote, give to political or charitable organizations, donate blood, join rescue squads
and sometimes sacrifice their life for strangers. Many experiments and field studies confirm that a significant
fraction of people engage in altruistic or reciprocal behaviors. A number of important phenomena and
puzzles, however, cannot be explained by the sole presence of individuals with other-regarding preferences.
First, providing rewards and punishments to foster prosocial behavior sometimes has a perverse effect,
reducing the total contribution provided by agents. Suc h a crowding-out of “intrinsic motivation” by extrinsic
incen tives has been observed in a broad variety of social interactions (see Bruno S. Frey (1997) and Frey and
Reto Jegen (2001) for surveys). Studying schoolchildren collecting donations for a charitable organization,
Uri Gneezy and Aldo Rustichini (2000b) thu s found that they collected less money when given performance
incen tives (see also Frey and Lorenz Götte (1999) on v olunteer work supply). These findings are in line
with the ideas in Richard Titmuss (1970), who argued that paying blood donors could actually reduce
supply. On the punishment side, George A. Akerlof and William T. Dickens (1982), suggested that imposing
stiffer penalties could sometimes undermine individuals’ “internal justification” for obeying the law. Frey
(1997) provided some evidence to that effect with respect to tax compliance and Gneezy and Rustichini
(2000a) found that fining parents for picking up their children late from day-care cent ers resulted in more
late arrivals. In experiments on labor contracting, subjects provided less effort when the contract specified
fines for inadequate performance than when it did not (Fehr et al. (2001) and Fehr and Gächter (2002))
and they behaved much less generously when the principal had simply removed from their choice set the
most selfish options (Armin Falk and Michael Kosfeld (2004)). These findings extend a large literature in
psychology documenting how explicit incentives can lead to decreased motivation and unchanged or reduced
task performance (see, e.g. Edward Deci (1975), Deci and Richard Ryan (1985)). In studying this class of
phenomena, however, one cannot simply assume that rewards and punishments systematically crowd out
spontaneous contributions. Indeed, there is also much evidence to support the basic premise of economics
that incen t ives are generally effectiv e, for instance in workplace contexts (e.g., Robert Gibbons (1997), Canice
Prendergast (1999) and Edward P. Lazear (2000a,b)). A more discriminating analysis is thus required.
A second set of issues relates to the fact that people commonly perform good deeds and refrain from
selfish ones because of social pressure and norms that attach honor to the former and shame to the latter
1

(e.g., Dan Batson (1998), Richard B. Freeman (1997)). Charitable and non-profit institutions make ample
use of donors’ desire to demonstrate their generosit y and selflessness (or at least the appearance thereof),
with displays ranging from lapel pins and T-shirts to plaques in opera houses or hospitals and buildings
named after large contributors. The presence of a social signalling motive for giving is also evident in the
fact that anon ymous donations are both extremely rare —t ypically, less than 1 percent of the total number
2
—
and widely considered to be the most admirable. Conv ersely, boasting of one’s generous contributions is often
self-defeating. Codes of honor, whose stringency and scope varies considerably across time and societies, are
another example of norms enforced largely through feelings of shame (losing face) or glory. To understand
these mechanisms it is again important to not posit exogenous social constraints, but rather to model the
inferences and market conditions involved in sustaining or inhibiting them.
Finally, as much as people care about the opinion others have of them, they care about their own self-
image. In the words of Adam Smith (1776), they mak e moral decisions by assessing their own conduct
through the eyes of an “impartial spectator”, an “ideal mate within the breast”:
“We endeavour to examine our own conduct as we imagine any other fair and impartial spectator
would examine it. If, up on placing ourselves in his situation, we thoroughly enter into all the passions
and motives which influenced it, we approve of it, by sympathy with the approbation of this supposed
equitable judge. If otherwise, we enter into his disapprobation, and condemn it.”
In more contemporary terms, psychologists and sociologists describe people’s behavior as being influenced
b y a strong need to maintain conformity between one’s actions, or even feelings, and certain values, long-term
goals or identities they seek to uphold.
3
Recent empirical studies confirm the importance of such self-image
concerns and their contribution to prosocial behavior.
4
A very telling experiment by Jason Dana, Jason
2
See, e.g., the studies reported in Glazer and Konrad (1996, p. 1021). Note that anonymous contributions
have the same tax-deduction benefits as nonanonymous ones.
3
Th us Batson (1998) writes that “The ability to pat oneself on the back and feeling god about being
a kind, c aring person, can b e a powerful incentive to help”; he also discusses the anticipation of guilt. Daniel
Kahneman and Jack Knetsch (1992) find that subjects’ stated willingness to pay for alternative public goods is
well predicted by independent assessments of the associated “moral satisfaction”. Mich èle Lamont (2000)
documents the importance attached by her interviewees to the presence or absence of the “caring self” not just
in others, but also in themselves.
4
For instance, in a transportation-related survey of about 1,300 individuals, Olof Johansson-Stenman and
Peter Martinsson (2003) find that people who are asked which attributes in a car are most important to them
systematically put env i ronmental performance near the top and social status near the bottom; but when asked
2

Kuang, and Roberto Weber (2003) thus reveals that when people are given the opportunity to remain
ignoran t of how their c h oices affect others, or of their precise role in the outcome (as with firing squads,
whic h alway s have one blank bullet), many “altruists” choose not to know and revert to selfish choices.
5
To examine this broad array of issues, we develop a theory of prosocial beha vior that com bines hetero-
geneity in individuals’ degrees of altruism and greed with a concern for social reputation or self-respect. The
key property of the model is that agents’ pro- or anti-social behavior reflects an endogenous and unobservable
mix of three motivations: intrinsic, extrinsic, and reputational, which must be inferred from their ch oices
and the context. We obtain four main sets of results.
— Rewards and punishments. The presence of extrinsic incentives spoils the reputational value of good
deeds, creating doubt about the extent to which they were performed for the incentives rather than for
themselves. This is in line with what psychologists term the “overjustification effect” (e.g., Mark R. Lepper
et al. (1973)), to which we give here a formal content in terms of a signal-extraction problem.
6
Rewards act
like an increase in the noise-to-signal ratio, or even reverse the sign of the signal, and the resulting crowding
out of the reputational (or self-image) motivation to contribute can make aggregate supply downward-sloping
over a wide range, with possibly a sharp drop at zero.
— Publicity and disclosure. The prominence and memorability of contributions strengthen the signaling
motive and thus generally encourage prosocial behavior. When individuals are heterogeneous in their image
concerns, however, a greater prominence also acts like an increase in the noise-to signal-ratio: good actions
become suspected of being motivated by appearances, which limits the effectiveness of policies based on
“image rewards” such as praise and shame. The same concern can lead individuals to refrain from overtly
disclosing their good deeds and from turning down any rewards that are offered. Sponsors may respond to
contributors’ desire to appear intrinsically rather than extrinsically motivated by publicly announcing low
rewards, but then find it profitable to offer higher ones in private, creating a commitment problem.
about the true preferences of their neighbors or average compatriots, they give dramatically reversed rankings.
In terviews with car dealers show intermediate results.
5
In a related vein, J. Keith Murnighan et al. (2001) find that the fairness of offers in dictator games
is significantly decreased when the precision with which offerers can split the cake is decreased, allowing them
to construe the outcomes as largely outside their control.
6
It is also consistent with the informal explanation provided by Frey and Jegen (2001), namely that “An
intrinsically motivated person is deprived of the chance of displaying his or her own interest and involvement
in an activity when someone else offers a reward, or orders him/her to do it”.
3

Frequently asked questions

Q1. What are the contributions in "Nber working paper series incentives and prosocial behavior" ?

The views expressed herein are those of the author ( s ) and do not necessarily reflect the views of the National Bureau of Economic Research. 

Q2. What is the effect of a higher shadow cost of public funds?

As to a higher shadow cost of public funds (a proportional reduction in αs and Bs), it naturally tends to reduce ys; when contributions are substitutes, some of this reduced public intervention is made up by increased social pressure, as ∆ rises in response to the decline in participation. 

Q3. What is the effect of announcing higher fees?

Under public disclosure (but not confidentiality), strategic complementarity creates a “bandwagon effect” that raises the slope of the supply curve and therefore makes announcing higher fees profitable. 

Q4. What is the effect of rewards and punishments on crime-like behaviors?

For crime-like behaviors the effect of rewards and punishments (y) is amplified by the response of social pressure (crowding in), whereas for self-sacrifices it moves in the opposite direction (partial crowding out). 

Q5. What is the effect of material rewards on the reputational value of good deeds?

Since the presence of material rewards spoils the reputational value of good deeds, it is natural to examine what will occur when sponsors can keep them confidential, or when agents have the opportunity to turn them down. 

Q6. What is the effect of a high cost of behaving prosocially?

For all distributions that have a standard “bell shape”, or a full support on R, a sufficiently high cost of c of behaving prosocially (heroic deeds) will place the cutoff v∗a in the upper tail, where∆ is decreasing (by Part 1.c of Proposition 6), whereas a sufficiently high cost of behaving antisocially (crime, persistent non-employment) will place it in the lower tail, where ∆ increases. 

Q7. What is the simplest interpretation of the model?

The simplest interpretation of their model is thus one where there is a unit continuum of agents, so that va = ua, but where κ = 1 so that the average contribution still generates a public good, which individuals value as waā. 

Q8. What is the effect of a positive correlation on vy?

17 When σay 6= 0, a positive correlation tends to amplify the decline in ρ(y), a negative one works to weaken it.18 Indeed, the more va and vy tend to move together, the less observing17 More precisely, yχ(y) = 1− ρ(y) rises with y everywhere, but the same is true of χ(y) only for |y| ≤ 1/θ. 18 For instance, as the correlation between va and vy rises from −1 to 0 to 1, the function ρ(y) pivots downwards over the range 0 < y < 1/θ , from 1/(1−θy) to 1/(1+θ2y2) and then to 1/(1+θy). 

Q9. What is the optimal penalty for antisocial activities?

the optimal penalty for antisocial activities such as littering, polluting, etc., should “leave space” for the effect of opprobrium, which itself depends on the fine. 

Q10. What is the effect of zero on the supply response?

when individuals’ desire for money becomes much more uncertain (to observers) than their motivation for the specific task at hand, and even if they have only a minimal concern about appearing greedy (µ̄y is small), the supply response becomes discontinuous (downward) at zero. 

Q11. What is the optimal action for a person with type (v,)?

The optimal action chosen by an agent with type (v,µ) is thena = va + y · vyk + µaρ(y)− µyχ(y)(21) and the marginal reputations are ∂E (va|a, y) /∂a = ρ(y)k and ∂E (vy|a, y) /∂a = χ(y)k, with a net value of r(y;µ) = (µaρ(y)− µyχ(y))k for the agent. 

Q12. What is the main argument for the change in public policy?

These results provide both some support and an important qualification to arguments (e.g. Brennan and Pettit (2004)) calling for a shift in public policy from the use of fines and other costly sentences to a greater reliance on public praise and shame. 

Q13. What is the expected payoff of a sponsor from setting a reward rate?

A sponsor’s expected payoff from setting a reward rate y is thus equal or proportional to π(y) ≡ nā(y) (B − y) .30The authors assume that the sponsor can commit to either of two incentive policies: confidentiality (C), under which only the agent knows the level of y offered (but participation is publicly observable), or public disclosure (D). 

Q14. What is the main argument for relatively low pay for the military?

one argument for relatively low pay for the military is to select true patriots rather than people whose main loyalty is to money (e.g., mercenaries who may find out one day that the enemy pays better). 

Q15. What is the effect of secret renegotiation on the price of a reward?

In this case, the sponsor and participants would agree to secretly increase the reward ex-post; anticipating this collusive renegotiation, the audience properly expects that the actual fee will be yC and not yD.