The Price of a Price: On the Crowding Out and In of Social Norms

Janssen, M., & Mendys-Kamphorst, E. (2004). The price of a price: On the crowding out and in of social norms. Journal of Economic Behavior & Organization, 55(3), 377-395. doi:10.1016/j.jebo.2002.11.004.

We study the impact of financial incentives on social approval, showing that in a society with altruists and egoists, who all care about social approval, introducing financial incentives to agents to contribute to a socially desirable outcome may actually decrease the number of contributions. Withdrawing the financial incentive does not restore the norm to contribute and may reduce the level of contributions even further. When the norm has disappeared, it may be possible to restore voluntary contributions by first introducing high price and then reducing it, but such an operation is costly and its success uncertain.

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