Tuesday, November 22, 2011

Thinking beyond stage one with incentives

Last week I blogged about the possibility of perverse incentives being generated in teachers by off-school hours remedial education. The larger purpose of the post was to highlight how specific policies can have unanticipated secondary or emergent consequences which could even end up subverting the desired objective.

In this context, Uri Gneezy, Stephan Meier, and Pedro Rey-Biel have an excellent paper which looks at the similar consequences caused by incentives in public policy. They write,

When explicit incentives seek to change behavior in areas like education, contributions to public goods, and forming habits, a potential conflict arises between the direct extrinsic effect of the incentives and how these incentives can crowd out intrinsic motivations in the short run and the long run... In the emerging literature on the use of incentives for lifestyle changes, large enough incentives clearly work in the short run and even in the middle run, but in the longer run the desired change in habits can again disappear...

A considerable and growing body of evidence suggests that the effects of incentives depend on how they are designed, the form in which they are given (especially monetary or nonmonetary), how they interact with intrinsic motivations and social motivations, and what happens after they are withdrawn... we believe that the discussion should not be whether incentives negatively affect contributions to public goods, but when incentives do and do not work.

They discuss the different dynamics of extrinsic incentives and its impact on intrinsic motivation - "bribes" reduce intrinsic motivation; "pay enough or don't pay at all"; when incentives are so high, people choke under pressure; clarity in incentive message - "read these books" rather than "read books"; incentives can break social norms of trust and weaken pro-social behaviour or reduce image motivation; motivation is crowded out after incentives are removed; differing impact of incentives on students, teachers and parents, etc.

In the context of extrinsic incentives crowding out intrinsic motivation and pro-social behaviour, it may be interesting to explore whether this effect would be same at all initial levels of motivation. Intuitively, it would appear that such crowding out becomes pronounced in case of individuals with higher initial levels of motivation. Alternatively, in case of individuals with lower motivation levels, extrinsic incentives may not have much adverse effect. In such people, they neither enjoy their activity nor do they place as much a premium on their image vis-a-vis others.

Does it mean that extrinsic incentives may be more effective or have less adverse long-term consequences in many developing countries among cutting edge public functionaries who are largely characterized by low levels of self-esteem and motivation?

1 comment:

KP said...

Dear Gulzar,

Your question

"Does it mean that extrinsic incentives may be more effective or have less adverse long-term consequences in many developing countries among cutting edge public functionaries who are largely characterized by low levels of self-esteem and motivation?"

On a lighter note - I have never met a senior government functionary who was less than self-regarding :) so a low self esteem seems like a rare instance.

The danger of tying incentives to bureaucracy - is that it conveniently ignores a downside to poor performance. At best nothing by the way of a disincentive - and I am not refering to disciplinary issues here.

Incentives in the private sector come with a deep downside - and risks associated with the job -related to growth / exposure / termination. The bureaucracy is not structurally suited to such experiments. ( except Singapore)

Also, I think, the bureaucracy blithely ignores - unquantified perks - structured careers - service years related pay - social capital of a high order - particularly in a country like India. The private sector is no haven and is harsh in in these terms.

Since non-performance / corruption may be closely linked - I have always wondered if additional incentives / salary ever reduced corruption by an equivalent amount. My gut feel - NO.

Why I use this crude measure - is my sense that any additional incentivization / salary simply becomes a norm and a new equilibrium - it does not enhance the quality of work.

Motivation in a role is fundamentally intrinsic - the biggest problem is an executive that barely provides the kind of motivational leadership that is required to perform jobs in the social sector.

(By the same token, we should'nt have an exaggerated respect for the private sector - the private sector has deep issues of free riders - and I don't think a simple equivalence of pay and performance can be made - many survive by the luck of the draw.
But the market and various factors can be a harsh judge - wiping out companies and livelihoods.)

An incentive creep is the next problem we may want to avoid in the bureaucracy. Particularly where a monopolist like the government operates. The financial sector is not the most appropriate example - but highlights the dangers of incentivizing a closed clubby system - that in parts resemble the government.

Bottomline : Incentive cannot replace leadership - and an abscence of intrinsic motivation cannot be helped by either.

regards, KP.