Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes

TLDR

Conformists exhibit social preferences when they believe many others share those preferences. The study develops an explanation for motivation crowd‑out phenomena within a social preferences framework. The model introduces a third agent type—conformists—alongside selfish and altruistic types, and shows that asymmetric information about the social norm allows incentive schemes or autonomy to signal a principal’s beliefs. High‑powered incentives can crowd out motivation by conveying pessimism about the norm, whereas fixed wages or autonomy can signal trust in a favorable norm. JEL codes: D64, D82, J41, Z13.

Abstract

An explanation for motivation crowding-out phenomena is developed in a social preferences framework. Besides selfish and fair or altruistic types, a third type of agent is introduced. These “conformists” have social preferences if they believe that sufficiently many of the others do as well. When there is asymmetric information about the distribution of preferences (the “social norm”), the incentive scheme offered or autonomy granted can reveal a principal's beliefs about that norm. High-powered incentives may crowd out motivation as pessimism about the norm is conveyed. But by choosing fixed wages or granting autonomy, trust in a favorable norm may be signaled. (JEL D64, D82, J41, Z13)