Economic Incentives and Social Preferences: A Preference-Based Lucas Critique of Public Policy

50 Pages Posted: 5 Aug 2009  

Samuel Bowles

Santa Fe Institute

Sandra Polania Reyes

University of Siena - Faculty of Economics

Date Written: July 1, 2009

Abstract

Policies and explicit private incentives designed for self-regarding individuals sometimes are less effective or even counterproductive when they diminish altruism, ethical norms and other social preferences. Evidence from 51 experimental studies indicates that this crowding out effect is pervasive, and that crowding in also occurs. A model in which self-regarding and social preferences may be either substitutes or complements is developed and evidence for the mechanisms underlying this non-additivity feature of preferences is provided. The result is a preference-based analogue to the Lucas Critique restricting feasible implementation to allocations that are supportable given the effect of incentives on preferences.

Keywords: public goods, behavioural experiments, social preferences, second best, motivational crowding, explicit incentives

JEL Classification: A13, C90, D02, D63, D64, H41, D78, E61, Z13

Suggested Citation

Bowles, Samuel and Polania Reyes, Sandra, Economic Incentives and Social Preferences: A Preference-Based Lucas Critique of Public Policy (July 1, 2009). CESifo Working Paper Series No. 2734. Available at SSRN: https://ssrn.com/abstract=1443865

Samuel Bowles (Contact Author)

Santa Fe Institute ( email )

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Sandra Polania Reyes

University of Siena - Faculty of Economics ( email )

Piazza San Francesco, 7
I-53100 Siena, 53100
Italy

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