Can Incentives Cause Harm? Tests of Undue Inducement
97 Pages Posted: 27 Aug 2016 Last revised: 21 Dec 2021
Date Written: August 10, 2021
Abstract
Around the world, laws limit incentives for transactions such as human research participation, egg donation, or gestational surrogacy. A key reason is the notion of undue inducement—the conceptually vague and empirically largely untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives bias information search. Yet, such behavior is also consistent with Bayes-rational behavior. I develop a criterion that indicates whether choices admit welfare weights on benefit and harm that justify permitting the transaction but capping incentives. In my experimental data, no such weights exist.
Keywords: Incentives, Repugnant Transactions, Information Acquisition, Rational Inattention, Experiment, Individual Choice
JEL Classification: D03, D04, D84
Suggested Citation: Suggested Citation