Since human beings are purposeful creatures, the study of incentive structures is central to the study of all economic activity (both in terms of individual decision-making and in terms of co-operation and competition within a larger institutional structure). Economic analysis, then, of the differences between societies (and between different organizations within a society) largely amounts to characterizing the differences in incentive structures faced by individuals involved in these collective efforts. Ultimately, incentives aim to provide value for money and contribute to organizational success.
aintain fair standards. Even after a piece rate or other incentive standard is fixed, workers may be hesitant to show farmers their full performance potential. A call from a grower will best illustrate what I mean. He expressed the frustration that his employees were earning too much. “I have been thinking of reducing what I pay per grapevine from 32 cents per vine to 28,” he explained. I explained to the grower that the piece rate should not be diminished, that half his crew was apt to leave–the better half–and the other half would never trust him again. “I was just putting you to the test,” the grower retorted. “I reduced the piece rate last week, and half the crew already left …”
Crew members sometimes exert pressure on overly productive coworkers to have them slow down. They fear standards will be increased (i.e., they will have to put in more effort to make the same amount) either now or in future years. A worker described how on a previous job he had been offered $1 per box of apricots picked. When he picked 100 boxes for the day within a few hours the rate was suddenly changed to 50 cents per box. Another worker explained, “If we are making too much on piece rate we are told to also weed, and that reduces our earnings.
Incentives can be 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:
Remunerative incentives : are said to exist where an agent can expect some form of material reward — especially money — in exchange for acting in a particular way.
Moral incentives : are said to exist where a particular choice is widely regarded as the right thing to do, or as particularly admirable, or where the failure to act in a certain way is condemned as indecent. A person acting on a moral incentive can expect a sense of self-esteem, and approval or even admiration from his community; a person acting against a moral incentive can expect a sense of guilt, and condemnation or even ostracism from the community.
Coercive incentives : are said to exist where a person can expect that the failure to act in a particular way will result in physical force being used against them (or their loved ones) by others in the community — for example, by inflicting pain in punishment, or by imprisonment, or by confiscating or destroying their possessions.
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.