Another Hidden Cost of Incentives: The Detrimental Effect on Norm Enforcement

54 Pages Posted: 6 Mar 2009

See all articles by Andreas Fuster

Andreas Fuster

Swiss National Bank - Financial Stability

Stephan Meier

Federal Reserve Bank of Boston; IZA Institute of Labor Economics; Columbia Business School - Management

Multiple version iconThere are 2 versions of this paper

Date Written: March 3, 2009

Abstract

Monetary incentives are often considered as a way to foster contributions to public goods in society and firms. This paper investigates experimentally the effect of monetary incentives in the presence of a norm enforcement mechanism. Norm enforcement through peer punishment has been shown to be effective in raising contributions by itself. We test whether and how monetary incentives interact with punishment and how this in turn affects contributions. Our main findings are that free riders are punished less harshly in the treatment with incentives, and as a consequence, average contributions to the public good are no higher than without incentives. This finding ties to and extends previous research on settings in which monetary incentives may fail to have the desired effect.

Keywords: public goods, experimental economics, norm enforcement, hidden costs of incentives

JEL Classification: C72, C92, D23, H41

Suggested Citation

Fuster, Andreas and Meier, Stephan, Another Hidden Cost of Incentives: The Detrimental Effect on Norm Enforcement (March 3, 2009). FRB of Boston Working Paper No. 09-2, Available at SSRN: https://ssrn.com/abstract=1354746 or http://dx.doi.org/10.2139/ssrn.1354746

Andreas Fuster (Contact Author)

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

Stephan Meier

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

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