Motivation Crowding Theory: A Survey of Empirical Evidence

TLDR

The motivation crowding effect suggests that external monetary incentives or punishments may undermine or strengthen intrinsic motivation, and while its theoretical possibility is widely accepted, many economists question its empirical relevance. The survey draws on circumstantial insight, laboratory studies by psychologists and economists, and field econometric research across diverse areas, countries, and periods. Empirical evidence confirms both crowding out and crowding in, showing that crowding effects are a relevant phenomenon that can even dominate traditional relative price effects in specific cases.

Abstract

The motivation crowding effect suggests that an external intervention via monetary incentives or punishments may undermine (and under different indentifiable conditions strengthen) intrinsic motivation. As of today, the theoretical possibility of crowding effects is widely accepted among economists. Many of them, however, have been critical about its empirical relevance. This survey shows that such scepticism is unwarranted and that there exists indeed compelling empirical evidence for the existence of crowding out and crowding in. It is based on circumstantial insight, laboratory studies by both psychologists and economists as well as field research by econometric studies. The presented pieces of evidence refer to a wide variety of areas of the economy and society and have been collected for many different countries and periods. Crowding effects thus are an empirically relevant phenomenon, which can, in specific cases, even dominate the traditional relative price effect.