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American Economic Review: Vol. 97 No. 3 (June 2007)

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Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes

Article Citation

Sliwka, Dirk. 2007. "Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes." American Economic Review, 97(3): 999-1012.

DOI: 10.1257/aer.97.3.999

Abstract

An explanation for motivation crowding-out phenomena is developed in a social preferences framework. Besides selfish and fair or altruistic types, a third type of agent is introduced. These "conformists" have social preferences if they believe that sufficiently many of the others do as well. When there is asymmetric information about the distribution of preferences (the "social norm"), the incentive scheme offered or autonomy granted can reveal a principal's beliefs about that norm. High-powered incentives may crowd out motivation as pessimism about the norm is conveyed. But by choosing fixed wages or granting autonomy, trust in a favorable norm may be signaled. (JEL D64, D82, J41, Z13)

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Sliwka, Dirk


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