Psychological Foundations of Incentives

54 Pages Posted: 17 Dec 2001

See all articles by Ernst Fehr

Ernst Fehr

University of Zurich - Department of Economics

Armin Falk

University of Bonn - Economic Science Area; briq - Institute on Behavior & Inequality

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002


During the last two decades economists have made much progress in understanding incentives, contracts and organisations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves.

Keywords: Incentives, Contracts, Reciprocity, Social Approval, Social Norms, Intrinsic Motivation

JEL Classification: J41, C91, D64

Suggested Citation

Fehr, Ernst and Falk, Armin, Psychological Foundations of Incentives (May 2002). Available at SSRN: or

Ernst Fehr (Contact Author)

University of Zurich - Department of Economics ( email )

Blümlisalpstrasse 10
Zuerich, 8006
+41 1 634 3709 (Phone)
+41 1 634 4907 (Fax)

Armin Falk

University of Bonn - Economic Science Area ( email )

briq - Institute on Behavior & Inequality

Schaumburg-Lippe-Straße 5-9
Bonn, 53113


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics