Do Incentives Affect Behavior? Would an Economist Know?

Research Report

Do Incentives Affect Behavior? Would an Economist Know?

April 3, 2006

Abstract

In recent decades, economists have acquired great weight in debates over incentives. When it comes to examining the effect of policy incentives on behavior, the theory is relatively straightforward. However, many factors, especially non-financial, have been ignored for sometimes very legitimate reasons. Still, I have long believed that the failure to take into account other psychological and sociological motives for behavior, as well as the effect of complexity on the behavior that results, is a fundamental source of error in much of the economics literature. At the same time, I have come to believe in the great power of some incentives even if they cant be measured well. As for how much incentives change behavior, that is less clear to me.

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