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Incentive overlap example[edit]

I've moved part of the last paragraph of the first section, as the article has been restructured, off the page to here:cgghfghsh

[In American society where social, economic, and cultural success are inextricably intertwined ...] Similarly, in this highly competitive society with a weakening social safety net, remunerative incentives have become, de facto, coercive. An individual who loses his or her job may experience drastic and highly stressful life changes, including forced relocations, loss of possessions, and humilation.

I've moved this for a couple of reasons. The first is that I think it involves a confusion about the taxonomy of incentives that structures the article: coercive incentives, as defined, are incentives that are carried by situations where physical violence is threatened, or used, against person or property. It's a mistake, I think, to suggest that going into debt or facing a lot of stress, or being treated like crap (undeservedly) by other people ends up being a coercive incentive, de facto or otherwise. Humiliation by others is a straightforward example of a moral disincentive (in the sense of acting out social norms, not necessarily in the sense of a personal sense of duty); stress is straightforwardly a personal (emotional) disincentive; and running out of money and having to downgrade or suddenly change living conditions due to money or job constraints are entirely within the realm of remunerative disincentives (if I don't do P, then I won't have the money that I need to keep doing Q).

Of course these are like a coercive incentive in important respects--they are all very unpleasant, and may even (in the case of extreme poverty) endanger the happiness, health, or even the life of the person facing them. But all disincentives are in some respect unpleasant (that's why they are all categoried as disincentives); and the severity of the situation that the person faces impacts how extreme the disincentive is, but not whether physical violence is being employed.

You might, of course, argue that if you're facing (say) starvation out of extreme poverty, then the situation you're in is like a situation in which your life is threatened by violence in all relevant respects (i.e., that the difference between the non-coerced and the coerced threat of starvation is not a particularly important one for the person deciding what to do, and perhaps that it shouldn't be relevant for public policy decisions about how to treat that person). That's not a bizarro argument to make, but it's not the same as arguing that in this case a remunerative incentive is also a coercive one. And it also points to the second reason that I've changed the example a bit and moved the original here to the talk page: because even if the example is precisified, it approaches or perhaps steps over the line into POV in favor of government welfare programs. Which is not to say that the debate over whether the risk of starvation from poverty is or is not enough like a threat of bodily violence to justify welfare policies couldn't belong on this page, but if it is to be on the page, it would have to be discussed as a debate, rather than having one position in the debate stated matter-of-factly in the course of an elucidatory example.

I hope that this had made some sense. Thanks for the work you've done on the article. Cheers!

Radgeek 19:36, 4 Jun 2004 (UTC)

Intro paragraph[edit]

I have clipped the following two sentences back out of the introductory paragraph:

It is a kind of motivation. Incentive can be of two types; Financial Incentive and Non-Financial Incentive.

It is not at all clear to me why they were added. Besides making the opening paragraph more difficult to read, they also restate information contained in the immediately preceding sentence (that incentives bear on motivation) and in the immediately following paragraph (that incentives can be either financial and non-financial). Further, it adds a conceptual confusions: incentives are not motivations but rather the objects of motivation. (If I'm working to make money, my incentive for work is the money, not the motivation to get money.)

If there is some reason that these sentences really need to be where they were added, please let me know. Radgeek 13:44, 21 Jun 2005 (UTC)

Corporate merger[edit]

The "positive aspects of incentives" and "negative aspects of incentives" sections have been merged into a single section discussing "Incentive Problems", focusing on the subject of unintended consequences.

As they had been written, the sections contained useful information but presented it at the cost of confusing the discussion. The "negative aspects" are not negative aspects of incentives (in the economic sense), but rather negative aspects of particular incentive structures -- specifically negative aspects that were not forseen by the people instituting those incentive structures. Any purposeful action whatsoever reflects some incentive structure, so describing these points as "positive" and "negative aspects of incentives" is rather like citing the fact that doctors and murderers each breathe it as "positive" and "negative aspects of oxygen."

Unintended consequences and other incentive problems are such a wide and important phenomenon in economics that they should indeed be discussed at the bottom of the article, but it should be done differently. In light of this I've tried merging the information in the two into a single discussion of the problem of unintended consequences. There's other stuff that could be discussed (such as the principal-agent problem) but that I haven't added in yet. I hope this helps the article progress! —Radgeek 14:31, 21 Jun 2005 (UTC)

Incentive plans[edit]

while i was looking for incentive plans . i was unable to find types of incentive plans you may include this into the article.

Types of incentive plans
Straight piece rate system
straight piece rate with guaranteed base wages
Diffrential piece ratesystem by FW Taylor
Hasley Plan
Rowan plan
Gantt Plan
Bedaux Plan
Emerson's Efficency plan
Group Incentive plan
Achalmeena 16:30, 5 February 2007 (UTC)

On a side-note, are these terms supposed to be ordered 1 to 7? If so, the auto-numbering may have gotten thrown off by the line break in there. --PURCDirector MarkJamison 15:29, 24 February 2009 (UTC) —Preceding unsigned comment added by PURCDirector MarkJamison (talkcontribs)

"Citation needed" on humans being purposeful creatures[edit]

About the "citation needed" added (improperly) by on 10 December 2008, re: humans being purposeful creatures...I, for one, don't think that citation *is* needed, and I'm kind of surprised this has been allowed to remain, given that has:

Maybe I'm missing something (which is why I'm posting here, instead of just removing it), but I don't understand why it's been allowed to remain. Anyone else want to weigh in on this, or should I just undo this nonsense? -- Pegasus Epsilon (talk) 10:03, 2 January 2009 (UTC)

It's been 12 days, and nobody's bothered responding. Either nobody cares, or everyone agrees, so I've removed it. Pegasus Epsilon (talk) 16:45, 14 January 2009 (UTC)
Is the statement "humans are purposeful creatures" axiomatic, tautological, or deducible? No, it's not. Evidence must be provided to show that humans are purposeful creatures, that is not something you can just assume to be true. Any human action could just as easily be considered a deterministic effect of a causal recursion. [1] (talk) 17:29, 11 December 2012 (UTC)


a benefit often used by large companies to attract workers and keep them happy. —Preceding unsigned comment added by (talk) 02:53, 8 January 2010 (UTC)

...I realy admire the topic and its article content. I'm going to use my expertize in some of writings. It will of course deal with tax incentives, in a fair economy. Well done!; keep up the good workDavid George DeLancey (talk) 14:38, 11 April 2011 (UTC)

Cognitive evaluation theory[edit]

I added cognitive evaluation theory to the See Also section, and I want to make sure the reason for it is clear before someone deletes it as irrelevant. Briefly, CET explains how different types of incentives affect motivation for a given behavior, and is supported by close to 40 years of empirical research. From what I can tell, the See Also should only have links, not comments about those links, which is why I'm putting this explanation here instead. If anyone wants to make this clearer on the article page, however, that's fine with me. psychojosh13 (talk) — Preceding unsigned comment added by (talk) 14:46, 23 April 2012 (UTC)

-- (talk) 19:58, 24 September 2012 (UTC)-- (talk) 19:58, 24 September 2012 (UTC)-- (talk) 19:58, 24 September 2012 (UTC)-- (talk) 19:58, 24 September 2012 (UTC)-- (talk) 19:58, 24 September 2012 (UTC)-- (talk) 19:58, 24 September 2012 (UTC) kjwkmpmn

Dr. Villeval's comment on this article[edit]

Dr. Villeval has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

The economic analysis of incentives is relatively poorly developed. The principal-agent theory should be presented as the theoretical framework that rationalize the design of optimal incentives to motivate agents in the presence of asymmetric information.

The hold-up problem could be introduced. The dynamic aspect of incentives and the ratchet effect should also be mentioned.

Incentives do not only increase motivation, they also contribute to the self-selection of individuals, as different people are attracted by different incentive schemes depending on thei attitudes towards risk, uncertainty, competitiveness.

The article could also refer to the opposite crowding-out theory of incentives: the introduction of monetary incentives can crowd-out intrinsic motivation.

Regarding the empirical analysis of incentives, many experimental studies have been developed that help understanding how incentives affect motivation.

Important references are missing, such as:

(1993). A theory of incentives in procurement and regulation - ‎Laffont J.J., Tirole, J.

Akerlof, G. (1970). The Market for ‘Lemons’: quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84, 488–500.

Chiappori, P. A., & Salanié, B. (2003). Testing contract theory: a survey of some recent work. In M. Dewatripont, L. Hansen, & S. Turnovsky (Eds.), Advances in economics and econometrics: Vol. 1 Cambridge: Cambridge University Press.

Kanemoto, Y., & MacLeod, B. W. (1992). The ratchet effect and the market for secondhand workers. Journal of Labor Economics, 10(1), 85–98.

Milgrom, P., & Roberts, J. (1992). Economics, organization and management. Englewood Cliffs: Prentice Hall.

Prendergast, C. (1999). The provision of incentives in firms. Journal of Economic Literature, 37, 7–63.

Cooper, David J., John H. Kagel, Wei Lo and Qing Liang Gu (1999), “Gaming Against Managers in Incentive Systems: Experimental Results with Chinese Students and Chinese Managers” American Economic Review 89(4), (Sept): 781-804.

Laffont, Jean-Jacques, and Jean Tirole (1988), “The Dynamics of Incentive Contracts” Econometrica, 56: 1153-75.

Lazear, Edward (1998), Personnel Economics for Managers. New York: Wiley.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

Dr. Villeval has published scholarly research which seems to be relevant to this Wikipedia article:

  • Reference : Robin M. Hogarth & Marie Claire Villeval, 2014. "Ambiguous Incentives and the Persistence of Effort : Experimental Evidence," Working Papers 1432, Groupe d'Analyse et de Theorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Universite Lyon 2, Ecole Normale Superieure.

ExpertIdeas (talk) 19:42, 26 August 2015 (UTC)

Dr. Gibbs's comment on this article[edit]

Dr. Gibbs has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

Incentives can be to classified according to the different ways in which they motivate agents to take a particular course of action. One common and useful taxonomy divides incentives into four broad classes:[2]

-> typo, delete "to" in first line

Natural Incentives such as curiosity, mental or physical exercise, admiration, fear, anger, pain, joy, or the pursuit of truth, or the control over things in the world or people or oneself.[3] -> add "Intrinsic Motivation" to cell with "Natural Incentives" (as "Remunerative Incentives" & "Financial Incentives" are together in the first row of the same table. Intrinsic Motivation is a very common term; I've never heard of "Natural Incentives"

-> Suggest adding a paragraph discussing use of incentives in Personnel Economics. This is the area of economics where "Incentive" is studied the most in theory & empirical research. Paragraph could discuss "principal-agent" model, then how it is commonly applied to understanding how firms manage employee incentives (including pay & career concerns, performance evaluation, subjective evaluation, etc.). Paragraph could then briefly note that a large subset of that literature considers CEO incentives.

A strong incentive is one that accomplishes the stated goal.[4] If the goal is to maximize production, then a strong incentive will be one that encourages workers to produce goods at full capacity. A weak incentive is any incentive below this level.[5] -> I have never heard this term "strong incentive" before. The goal is not to maximize production; it is to maximize profits (or other objective if the organization is not a for-profit). It does not encourage workers to "produce goods at full capacity." An optimal incentive motivated the worker to work, but balances that against both the marginal disutiity of effort, and the risk imposed on the employee by tying rewards to imperfect performance evaluations.

Also there is the tradeoff of short term gains at the expense of long term gains or even long term company survival. It is easy to plunder the assets of a previously successful company and show spectacular short term gains only to have the enterprise collapse after those responsible have gotten their incentives and left the organization or industry. Although long term incentives could be part of the incentive system, they have been abandoned in the past 20 years. An example of an organization that used long term incentive programs was Hughes Aircraft and was highly successful until the government forced its divestiture from the Howard Hughes Medical Institute. Recently there has been movement on adopting the Benefit Corporation or B-Corporation as a way to change the trend away from short term financial incentives to long term financial and non financial incentives.[8] -> This paragraph editorializes & takes too narrow a view. I have several concerns with its statements. 1. "It is easy to plunder the assets ..." is a large overstatement at best. There are many mechanisms that firms (private or public) use to make it not "easy to plunder" ... otherwise firms would find it very difficult to obtain investors & separate ownership from control. To name a few: independent directors, audits, regulatory oversight, boards of directors, GAAP & IFSR accounting rules, & outside analysts of publicly traded firms. "Plundered" firms are by far the exception, not the rule. 2. I cannot think of empirical evidence consistent with the statement that long term incentives have "been abandoned in the past 20 years." To the contrary a great deal of discussion & consideration of this issue is provided by academic theorists & empiricists in economics, management, accounting, finance & strategy; moreover these issues are constantly discussed by practitioners, boards, analysts, etc. 3. stock price is, in fact, an extremely long-term performance measure, in an economy in which the Efficient Markets Hypothesis is a reasonable approximation (one with a relatively liquid stock market). In such an economy the stock price is the present discounted value of all future cash flows to shareholders, forever into the future. Accounting measures or any other performance measure will be less long-term oriented. 4. mention of B-Corporation is odd in this context. Such corporations are rare, & intended for other purposes (social agendas, etc.)

Not all for profit companies used short term financial incentives at levels below the president or very top executive levels. The trend to move financial incentives down the organization hierarchy started in the 1980s as a way to boost what was considered low productivity. Prior to that time the incentives were associated more with customer satisfaction and producing high quality products. Moving financial incentives down the corporate chain had the unintended consequences of subverting internal processes to save short term costs, forcing obsolescence at the lower levels as investment was deferred or abandoned, and lowering quality. Some of these issues are explored in the British documentary The Trap. This idea of financial incentives and pushing them to the lowest level common denominator has led to a new company structure or Organization#Ecologies where essentially everything is a standalone profit center with the only incentive being short term financial incentives. -> once again I find this entire paragraph problematic. It is true that corporations moved towards more use of incentive compensation, including at lower levels, from the 1980s onward. However, I am not aware of academic evidence that there was a shift towards "financial" incentives and away from other forms of incentives. In fact, a great deal of attention has focused on methods such as Balanced Scorecards during the last 2 decades - which emphasize things such as customer satisfaction and quality, the opposite of what is claimed in this paragraph. I am not aware of academic empirical research finding that firms "subverted internal processes ... forcing obsolescence ...". A documentary is not broadly sampled academic evidence. -> some firms use profit centers. However, profit centers are one of many types of organizational forms. Many, many firms do not use profit centers. That sentence is too sweeping.

A possible solution against the criticism of overpaying executives in boom times and underpaying them in recession times is by linking bonus targets to an operating Index. By doing so external effects (economic cycles) can be excluded from performance measurement. This makes incentive pay more fair or likely not certain as bonuses are based on performance relative to other companies in the peer universe. -> this paragraph appears to be discussing "relative performance evaluation." This is a technique that can in some circumstances be used to reduce measurement error (uncontrollable risk) in employee performance evaluations. It may do so in cases where 2 or more employees have common noise in their performance measures; comparing their performance against each other, or an index of their colleagues, can eliminate or reduce such risks. However, it can also increase risk if the employees have measure errors that are idiosyncratic. The topic was initially analyzed by Holmstrom; see also Gibbons & Murphy analyzing the topic in the context of CEO incentives.

Suggest linking this to the Personnel Economics wiki. Also suggest adding these references to provide resources on economic theory and empirical evidence on the topic. - Canice Prendergast, "The Provision of Incentives Within Firms." Journal of Economic Literature 37(1), pp. 7-63, 1999. - Edward Lazear & Michael Gibbs. Personnel Economics in Practice, 3rd ed., Chapters 9-12. Wiley, 2014.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

Dr. Gibbs has published scholarly research which seems to be relevant to this Wikipedia article:

  • Reference : Levenson, Alec R. & Zoghi, Cindy & Gibbs, Michael & Benson, George, 2011. "Optimizing Incentive Plan Design: A Case Study," IZA Discussion Papers 5985, Institute for the Study of Labor (IZA).

ExpertIdeasBot (talk) 13:04, 7 June 2016 (UTC)

Dr. Simonovits's comment on this article[edit]

Dr. Simonovits has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

There is a special field of the economics called mechanism design. It is assumed that the principal cannot verify all the actions of the agents or their specifics (e.g. disabled or not) and sets the rules as to ensure that all types behave consistently with the incentive compatibility. The Biblical example is Solomon's judgement when offered half-half of the body of a contested baby to the two presumed mothers. The true mother resigned from her part, signalling to King Solomon that she is the true mother.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Simonovits has expertise on the topic of this article, since he has published relevant scholarly research:

  • Reference : Andras Simonovits, 2014. "Benefit-retirement age schedules and redistribution in public pension systems," IEHAS Discussion Papers 1430, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

ExpertIdeasBot (talk) 16:23, 11 July 2016 (UTC)

Dr. Sunde's comment on this article[edit]

Dr. Sunde has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

Typo: Incentives can be classified according...

Typology: where would intrinsic motivation be located?

Generally: the article is rather lengthy and could be condensed. In particular, the sections "Regulation...", "Problems..." and "Recessions" are very specific and too long. They could be reduced to the core, potentially with some references, without loss.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Sunde has expertise on the topic of this article, since he has published relevant scholarly research:

  • Reference 1: Englmaier, Florian & Roider, Andreas & Sunde, Uwe, 2012. "The Role of Salience in Performance Schemes: Evidence from a Field Experiment," IZA Discussion Papers 6448, Institute for the Study of Labor (IZA).
  • Reference 2: Stracke, Rudi & Sunde, Uwe, 2014. "Dynamic Incentive Effects of Heterogeneity in Multi-Stage Promotion Contests," IZA Discussion Papers 8368, Institute for the Study of Labor (IZA).

ExpertIdeasBot (talk) 16:40, 2 August 2016 (UTC)

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