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Self-Determination, Incentives and the Crowding Out Effect

             In economics and psychology, the crowding out effect is considered both as based on strong empirical evidence and as an artifact. We present the different ways economists and psychologists discuss the existence of this effect and propose an integrative solution based on the self-determination theory. .
             Keywords: intrinsic motivation; incentives; crowding out effect; self-determination theory;.
             JEL Classification Code: J30; L20 .
             1. Introduction .
             Traditionally, in economics the theories of incentives and particularly agency theory make the implicit assumption that the more an individual is paid the higher his effort, even if there is some decreasing returns of payments. It is then possible for a principal to define his/her policy in terms of the relation that he/she possibly establishes between the wage or bonus given to the agents and their efforts. It is also assumed that punishment (e.g. a fine) permits to avoid some behaviors by agents (e.g. low effort). Eventually, even if it is costly, monitoring is considered as permitting to control agent Ÿs behavior and then to manage it. .
             The idea that monetary incentives, sanctions, as well as monitoring are always efficient seems however a too strong assumption. Psychologists and more recently economists have challenged it. In psychology, Expectancy-Valence Theory (henceforth EVT), .
             Cognitive Evaluation Theory (CET), Self Perception (SP) and more recently, the Self Determination Theory (SDT) have criticized the assumption, made by economists, that extrinsic motivation should always have positive effects on intrinsic ones. Economists have also pointed out some anomalies in the implicit relationships between rewards, sanctions or monitoring, on the one hand, and efforts, on the other hand. Frey and Oberholzer-Gee (1997), Kreps (1997), Frey and Jegen (2001), and more recently Bénabou and Tirole (2003) have shown that some crowding out effect might occur.

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