When and Why Incentives (Don't) Work to Modify Behavior

TLDR

Extrinsic incentives can conflict with intrinsic motivations, sometimes altering task perception and producing short‑term gains that ultimately erode long‑term engagement. The authors review studies of monetary incentives in education, public‑good contributions, and health behaviors such as smoking cessation and exercise. The review concludes that extrinsic incentives are effective only under specific conditions and often fail to sustain desired behaviors.

Abstract

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.