Extrinsic rewards and crowding-out of prosocial behaviour

Abstract

The law of supply is a fundamental principle of economics and states that any increase in price will increase the quantity supplied. In the case of prosocial behaviour, however, increasing rewards have reduced supply, posing a challenge to standard economic theory. Attempts to study such "crowding-out" have been limited by their small scale and inherent difficulties posed by calibration of experimental tests. We analyse a large-scale natural experiment in the environmental domain consisting of 20,370 independent observations derived from aggregation of approximately 27 million individual decisions. We find that aggregate supply of prosocial behaviour is “s-shaped”, demonstrating how attempts to increase prosocial behaviour using monetary rewards can be counter-productive. Our study shows that results derived from a small set of data points collected from an underlying s-shaped data-generating process is vulnerable to misinterpretation, and that proxy measures of intrinsic motivation ought to be collected to ensure theoretical advance.