Can Incentives Cause Harm? Tests of Undue Inducement

97 Pages Posted: 27 Aug 2016 Last revised: 21 Dec 2021

See all articles by Sandro Ambuehl

Sandro Ambuehl

University of Zurich - Department of Economics

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

Ambuehl, Sandro, Can Incentives Cause Harm? Tests of Undue Inducement (August 10, 2021). Available at SSRN: https://ssrn.com/abstract=2830171 or http://dx.doi.org/10.2139/ssrn.2830171

Sandro Ambuehl (Contact Author)

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

HOME PAGE: http://https://sites.google.com/site/sandroambuehl/home

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