The theory of incentives Laffont, Jean-Jacques; Martimort, David
2002., 20091227, 2009, 2002, 2009-12-27
eBook
Economics has much to do with incentives--not least, incentives to work hard, to produce quality products, to study, to invest, and to save. Although Adam Smith amply confirmed this more than two ...hundred years ago in his analysis of sharecropping contracts, only in recent decades has a theory begun to emerge to place the topic at the heart of economic thinking. In this book, Jean-Jacques Laffont and David Martimort present the most thorough yet accessible introduction to incentives theory to date. Central to this theory is a simple question as pivotal to modern-day management as it is to economics research: What makes people act in a particular way in an economic or business situation? In seeking an answer, the authors provide the methodological tools to design institutions that can ensure good incentives for economic agents.
First we discuss how extrinsic incentives may come into conflict with other motivations. For example, monetary incentives from principals may change how tasks are perceived by agents, with negative ...effects on behavior. In other cases, incentives might have the desired effects in the short term, but they still weaken intrinsic motivations. To put it in concrete terms, an incentive for a child to learn to read might achieve that goal in the short term, but then be counterproductive as an incentive for students to enjoy reading and seek it out over their lifetimes. Next we examine the research literature on three important examples in which monetary incentives have been used in a nonemployment context to foster the desired behavior: education; increasing contributions to public goods; and helping people change their lifestyles, particularly with regard to smoking and exercise. The conclusion sums up some lessons on when extrinsic incentives are more or less likely to alter such behaviors in the desired directions.
Background: Pediatric weight management programs (PWMP) improve weight status, but families often face challenges that hamper adherence. Monetary incentives improve adherence to medical/ lifestyle ...regimens in other populations, especially when framed as a loss versus a gain; however, data on monetary incentives in pediatric weight management are lacking. We report on early findings of a behavioral economic study of loss- and gain-framed incentives to enhance adherence in this population. Methods: A three-arm randomized control trial was used to evaluate the effects of incentives on PWMP adherence. Teens (13-18 years) attending a PWMP were randomized to 1 of 3 groups: a usual care/control group (CG), a gain incentive group (GG), and a loss incentive group (LG). Monthly overall adherence score points (Range: 0-100) were calculated based on participating in the study (0 to 10 points), steps per day tracked by Fitbit (0 to 30 points), completion of a daily dietary log (0 to 30 points), and monthly medical visits (0 to 30 points). Teens in the GG and LG could earn up to $100 per month dependent on their adherence score. ANOVA or Chi-square was used to evaluate group differences in overall adherence and subscale scores. Results: Currently, 38 teens have enrolled in the study, with a mean age of 14.9 ± 1.4 years, BMI of 38.1 ± 6.3 kg/m2, 60.5% female, 54.1% Medicaid, and 78.9% identifying as White. Physical activity adherence scores were higher in the GG (16.9 ± 10.8) than in the CG group (7.8 ± 9.8, p = 0.011). The mean monthly physical activity adherence in the LG group was 11.7 ± 12.1. There were no differences between groups in dietary reporting (p = 0.60), medical visits (p = 0.26), or overall adherence scores (p = 0.080). Conclusions: Monetary incentives may improve adherence to physical activity, but contrary to Behavioral Economic Theory, our early results suggest that gain-framed incentives may be superior to loss-framed incentives for pediatric weight management adherence.
In this study, we explore the role of Chief Executive Officers' (CEOs') incentives, split between monetary (based on both bonus compensation and changes in the value of the CEO's portfolio of stocks ...and options) and non-monetary (career concerns, incoming/departing CEOs, and power and entrenchment), in relation to corporate social responsibility (CSR). We base our analysis on a sample of 597 US firms over the period 2005–2009. We find that both monetary and non-monetary incentives have an effect on CSR decisions. Specifically, monetary incentives designed to align the CEO's and shareholders' interests have a negative effect on CSR and non-monetary incentives have a positive effect on CSR. The study has important implications for the design of executive remuneration (compensation) plans, as we show that there are many levers that can affect the CEO's decisions with regard to CSR. Our evidence also confirms the prominent role of the CEO in relation to CSR decisions, while also recognizing the complexity of factors affecting CSR. Finally, we propose a research design that takes into account endogeneity issues arising when examining compensation variables.
Retomando lo que Seaman plantea sobre la incidencia de la protección patrimonial en la valoración económica de barrios o de una ciudad, este comentario describe la experiencia que tenemos en Chile ...con normativas que han condicionado aumentos de valor. Los incentivos a la iniciativa privada en la protección patrimonial y la calidad urbana también se comentan, con el fin de derivar preguntas sobre hacia quién y con qué fin están concebidos estos instrumentos.
This paper studies the impact of incentives on worker self-selection in a controlled laboratory experiment. Subjects face the choice between a fixed and a variable payment scheme. Depending on the ...treatment, the variable payment is a piece rate, a tournament, or a revenue-sharing scheme. We find that output is higher in the variable-payment schemes compared to the fixed-payment scheme. This difference is largely driven by productivity sorting. In addition, different incentive schemes systematically attract individuals with different attitudes, such as willingness to take risks and relative self-assessment as well as gender, which underlines the importance of multidimensional sorting.
The Chinese government has introduced policy measures and financial incentives to promote electric vehicles (EVs) in alignment with its advanced industrial development and environmental ...sustainability. In order to stimulate market adoption and technological innovation, a dual-credits policy regime with strictly guided subsidies was first announced in 2017 and then tightened up in 2019 by relevant authorities of the central government. This study focuses on examining the latest development of EV policy in the Chinese mainland. It reviews the pertinent national-level policy measures and financial incentives for sustainable development of the EV industry in a macro scope over the past decade. Further, we develop a mathematical model to quantify the impact of the most update policy – the dual-credits policy regime. Our simulation results reveal a significant gap between the recent EV sales and the estimated future EV production needed under the new policy regime. Such significant gap implies remarkable policy pressure and inevitable execution challenges of the recently tightened dual-credits regime. In conclusion, we articulate strategic implications for EV market participants in China. Upcoming challenges including gradual phasing out of financial support and impending market competition are discussed.
•The paper focuses on the latest development of EV policy in Chinese mainland.•Supportive EV policies and financial incentives are reviewed in a macro scope.•Mathematical model is built to quantify the impact of the most update policy regime.•Simulation results reveal a significant gap between past sales and future production.•Strategic implications are articulated for the EV market participants in China.
Objective
The article examines public policies designed to improve quality and accountability that do not rely on financial incentives and public reporting of provider performance.
Principal Findings
...Payment policy should help temper the current “more is better” attitude of physicians and provider organizations. Incentive neutrality would better support health professionals’ intrinsic motivation to act in their patients’ best interests to improve overall quality than would pay‐for‐performance plans targeted to specific areas of clinical care. Public policy can support clinicians’ intrinsic motivation through approaches that support systematic feedback to clinicians and provide concrete opportunities to collaborate to improve care. Some programs administered by the Centers for Medicare & Medicaid Services, including Partnership for Patients and Conditions of Participation, deserve more attention; they represent available, but largely ignored, approaches to support providers to improve quality and protect beneficiaries against substandard care.
Conclusions
Public policies related to quality improvement should focus more on methods of enhancing professional intrinsic motivation, while recognizing the potential role of organizations to actively promote and facilitate that motivation. Actually achieving improvement, however, will require a reexamination of the role played by financial incentives embedded in payments and the unrealistic expectations placed on marginal incentives in pay‐for‐performance schemes.
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