When Economic Incentives Backfire

Organizations and societies rely on fines and rewards to harness people’s self-interest in the service of the common good. The threat of a ticket keeps drivers in line, and the promise of a bonus inspires high performance. But incentives can also backfire, diminishing the very behavior they’re meant to encourage. A generation ago, Richard Titmuss […]

by

Samuel Bowles

by

Samuel Bowles

From the Magazine (March 2009)

Summary.

Reprint: F0903A

Economic incentives become counterproductive when they undermine what Adam Smith called “the moral sentiments,” such as the desire to be esteemed by others and to be viewed as ethical and dignified. Organizational and social policy makers, take note.

Organizations and societies rely on fines and rewards to harness people’s self-interest in the service of the common good. The threat of a ticket keeps drivers in line, and the promise of a bonus inspires high performance. But incentives can also backfire, diminishing the very behavior they’re meant to encourage.

A version of this article appeared in the March 2009 issue of Harvard Business Review.

SB

Samuel Bowles (samuel.bowles@gmail.com) directs the Behavioral Sciences Program at the Santa Fe Institute and is a professor of economics at the University of Siena. He is the author of Microeconomics: Behavior, Institutions, and Evolution (Princeton, 2004).

When Economic Incentives Backfire

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