Performance Incentives

Performance incentives are a central element of an economist's policy toolkit. These incentives consist exclusively of material rewards. Even economists grudgingly agree that most people are motivated not only by monetary gain but also by social norms, such as by doing a good job or by intrinsic job satisfaction. Bitterly fought however is the well-established insight that monetary rewards often undermine these other motivators and, as a consequence, additional monetary rewards may reduce performance.