The Carrot or the Stick

Topics: Motivation, Motivation crowding theory, Incentive program Pages: 42 (10105 words) Published: December 18, 2012
The carrot or the stick? A study on motivation, behavior, and performance  of public employees 
Christian Bøtcher Jacobsen, PhD Fellow 
Department of Political Science, Aarhus University 

What motivates public employees? Exogenous motivational factors such as regulation and economic incentives are perhaps the most important public sector management device. Regulation has always been part of public sector management, and a still stronger attention to performance has only strengthened the role of regulation. Furthermore, the use of economic incentives is gaining importance in the public sector. Both regulation and economic incentives build on the logic that employees must be induced to perform a desired behavior whether this is done by rewarding compliance or sanctioning noncompliance. However, contrary to the conventional wisdom, recent studies suggest that extrinsic motivation factors may have detrimental effects for employee intrinsic motivation and performance. As extrinsic motivation factors are very important management tools in the public sector, it is essential to improve our knowledge on how they affect intrinsic motivation and performance. This project will undertake this task and contribute to closing the gap in our understanding. Motivation can be understood as the amount of potential energy an agent is willing to put into achieving a given objective. Therefore, motivation is decisive for how hard a person will work at a given task. Theories on rational behavior have typically regarded motivation as exogenous to individuals. They claim that a principal can induce agents through either monetary incentives or regulation. Extrinsic motivation is the motivation to obtain tangible benefits for the agent himself. In rough terms, the claim has been that more compensation or harder sanctions will provide greater work effort. This logic is the basis of the most influential theories on public administration, such as Principal-agent (PA) theory (Miller, 2005; Fama & Jensen, 1983; Alchian & Demsetz, 1972) and New Public Management (Dunleavy & Hood, 1994).

Nevertheless, empirical studies have shown differing results when exogenous factors have been put to the test – even though some find support for the theoretical expectations, most studies do not (Perry, 1988; Burgess, Propper & Wilson, 2002; Le Grand, 2003). This inconclusiveness is very likely caused by omitted factors. One such factor is intrinsic motivation. In this project, intrinsic motivation is the motivation to work for the benefit of others or for internal satisfaction. Social psychological theory claim that intrinsic motivation is decisive for work effort, and that extrinsic factors (such as regulation and economic incentives) can permanently undermine intrinsic motivation. The overall effect of extrinsic motivational


factors will therefore oftentimes be negative (Deci, 1971; Deci & Ryan, 1995; Deci, Koestner & Ryan, 1999). Nevertheless, social psychology fails to give satisfactory explanations for the combined effects of extrinsic and intrinsic factors.

A solution to this problem has been offered by economist, Bruno Frey, who has bridged the gap between rational theory and social psychology with the Motivation Crowding Theory (MCT). He has shown how the perception of extrinsic motivation factors (regulation and economic incentives) is decisive for its effect on performance. The claim is that, when agents perceive extrinsic motivation factors as controlling, intrinsic motivation is crowded out, which results in lower work effort. Oppositely, when agents perceive the extrinsic motivation factors as supportive, their intrinsic motivation is crowded in, and work effort is increased. Only a few have tested the MCT hypothesis. Most of these studies have concentrated on economic incentives, and a handful of field studies and laboratory experiments studies have found support for the claim (eg. Andersen & Pallesen, 2008; Benabou &...
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