Incentives and Prosocial Behavior

TLDR

The study develops a theory linking individual altruism, greed, and reputation concerns to explain prosocial behavior, identifies conditions for norm interaction, and analyzes optimal incentive levels. Extrinsic rewards or punishments can undermine prosocial acts through overjustification, while the dominance of stigma or honor shapes norm interactions and influences the socially optimal incentive level. Competition among sponsors can lower overall social welfare.

Abstract

We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or image-related) create doubt about the true motive for which good deeds are performed, and this “overjustification effect” can induce a partial or even net crowding out of prosocial behavior by extrinsic incentives. We also identify the settings that are conducive to multiple social norms and, more generally, those that make individual actions complements or substitutes, which we show depends on whether stigma or honor is (endogenously) the dominant reputational concern. Finally, we analyze the socially optimal level of incentives and how monopolistic or competitive sponsors depart from it. Sponsor competition is shown to potentially reduce social welfare.