Motivating prosocial behavior: Economic incentives and moral concerns. Nicola Lacetera University of Toronto

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1 Motivating prosocial behavior: Economic incentives and moral concerns Nicola Lacetera University of Toronto

2 Standard economic incentives are a powerful motivator also for prosocial and intrinsically motivated activities Research and policy implication: start simple (Lowenstein-Ubel, NYT 2010) Beyond intellectual curiosity Public good provision Design of complex incentive systems in organizations Experimenting with learning organizations, esp. NGOs, No-Profit

3 But we are scientists, so we are never done: what remaining questions? Interaction of incentives and institutional details E.g. conditional vs. unconditional incentives for blood donors Design and Framing E.g. cash vs. in kind, favor vs. work (Hossain and Li 2015), group vs. individual Spatial, intertemporal, and activity substitution: general equilibrium (LMS 2012, 2014) Distinguish multitask/observability from motivational crowding out Long and short term, and optimal frequency Does size matter? Can an incentive be too much? Cost-benefit analyses, and available alternatives/counterfactuals Homework for you: think about some unanswered questions Happy to receive your thoughts, give feedback, and steal your ideas

4 Are we barking at the right (or only) tree? The WHO, a radio listener, and me: reactions to LMS Science 2013 Letter to the editor from WHO: Lacetera et al. do not distinguish between unacceptable economic rewards for blood donation (such as US$15 or $25 supermarket vouchers) and acceptable small tokens (such as a free cholesterol test). [ ] the commercial collection of blood, plasma, and cellular blood components could exploit the poor (Dhingra 2013) A Canadian radio listener: Sure, I believe that those incentives increase blood donations. But I still would not use them, I don like the idea of it

5 Are we barking at the right (or only) tree? Revisiting crowding-out theories Strong moral arguments in predicting negative effect of material incentives Titmuss: degrading of societal values Both crowding out and adverse selection argument also have some moralistic features Deci: confusion of motives assumes they cannot coexist? Recent signalling-based models (a la Benabou-Tirole): showing response to extrinsic incentives for prosocial activities is bad

6 Are we barking at the right (or only) tree? Do moral beliefs matter after all? Is actual behavior in response to incentives all that matters? Back to looking at what people think and say? It does affect welfare! What can economists say about this?

7 2. Moral repugnance and economic transactions

8 Markets For (Almost) Everything? Markets are a widely accepted way to organize exchanges Prices aggregate information and guide decisions on whether to buy/sell goods and services Market competition leads to lower prices, higher quality, efficient allocation of resources

9 Markets For (Almost) Everything? But many markets present imperfections and failures that requires intervention, regulation, prohibition Public goods are often provided by the public sector or in non-market ways (e.g. regulated prices) Negative externalities (e.g. pollution) lead to limits, regulation Caps to production, taxes, etc. Safety and asymmetric information lead to prohibiting or constraining certain trades Exams, licenses for certain professions (doctors, lawyers, CFAs ) Limits to the sale of certain products, regulated prices (e.g. prescription drugs, alcohol, weapons )

10 Markets For (Almost) Everything? Beyond informational, appropriability and safety limits to markets: Ethical constraints Many transactions are prohibited to occur through markets because they are considered repugnant : Even if participants are willing to take part in a transaction, third parties disapprove and wish to prevent it (Roth JEP 2007)

11 Repugnant transactions

12 Repugnant transactions

13 Repugnant transactions (Michael Sandel)

14 Repugnant transactions

15 Repugnant transactions

16 Repugnant transactions

17 Repugnant transactions

18 Repugnant Transactions : Why Care? Moral values help tying communities, societies together What are these values? What are their origins, and (if at all) their evolution? Do they differ across societies? There are actions whose rightness or wrongness does not depend on their consequences (Kant, ~1760AD) Nothing is inherently good or evil (Spinoza, ~1650AD) Man is the measure of all things (Protagoras, ~450BC) Morality has no objective standard (Hume, ~1750AD) Most religion-based philosophies rely on sacred values

19 Repugnant Transactions : Why Care? Cultural, ethical boundaries determine markets and business opportunities What markets to enter and where? What business models / strategies are morally acceptable? Affect the existence and size of markets Cultural, ethical boundaries affect policymaking What is the impact and the cost of repugnance toward certain markets? How important is moral repugnance vis a vis other determinants of social choices, e.g. social welfare, economic efficiency? Does acceptance of repugnant transactions change when faced with new evidence, arguments about these other factors? What is the price of repugnance?

20 Repugnant transactions: the concerns Coercion, exploitation of the participants Lack of fairness and equal access Corruption of (public) moral values, e.g. human dignity Yuck factor or disgust

21 Repugnant transactions: the concerns Coercion, exploitation of the participants Informed consent at the basis of transactions from buying apples to receiving medical interventions. Safety issue Certain transactions may be too complex for people to factor in all costs and benefit E.g. surrogacy, even if unpaid Price-mediated ( market ) transactions may exacerbate concern: compensation may be used to solve pressing needs, thus attracting the poor and less educated, thus less likely to make a fully free and informed choice E.g. selling kidneys or eggs, selling life insurance contracts, prostitution, military, Ambuehl WP 2016, Ambuehl et al. AER P&P 2015: perception of high compensation for drug trials as immoral; less propensity of looking for negative info if high incentives

22 Repugnant transactions: the concerns Lack of fairness and equal access Applies to all transactions Belief that certain good/services should be available to anyone E.g. health related goods and services (general healthcare, blood, plasma, organs, medications ) both efficiency-related and ethical reasons E.g. certain good/services in specific circumstances moral aversion to price gouging during weather emergencies, disasters, attacks

23 Repugnant transactions: the concerns Corruption of (public) moral values, e.g. human dignity Price-mediated transactions are degrading of human nature: commodification (Sandel 2012). Falk-Szeich (Science 2013): Market interactions more conducive to let lab mice die (Small sample, and more about pivotality than morals? And what morals exactly?) Applies esp. to parts or services of human body: organs, blood, eggs/sperm, surrogacy, etc. No price or value for the human body or life Concerns for slippery slope : what are the boundaries? E.g. from live kidney donations to donating your heart (and dying) for $$? E.g. use body parts as collateral in transactions (e.g. a mortgage)?

24 Repugnant transactions: the concerns Yuck factor or disgust Emotional expression of deep wisdom, beyond reason s power fully to articulate it (Kass 1997)

25 Repugnant transactions: two classes of concerns Coercion and fairness Can be (at least partially) addressed by institutional design Information; time lag between consent and actual transactions; delayed compensation; in kind payments; minimum income/wealth requirements for suppliers; etc. E.g. compensate organ donors with contribution to college/pension fund (delay, inkind ); cooling off periods, or requirements of having>0 own children for surrogates; third-party (e.g. public agency) payments; etc. See in particular debate on compensating organ donors May be affected by considerations of tradeoffs, and new info Limits to individual freedom, equity/efficiency tradeoffs are frequent

26 Repugnant transactions: two classes of concerns Corruption, commodification and disgust Sacred values, taboo tradeoffs, fundamental truths [ ] the liberal consent theorists think that the commodification and privatization of public life can be addressed simply by adjusting the background conditions within which markets operate. According to [them], there is nothing wrong with commodification that fair terms of social cooperation cannot cure; if only society were arranged so that people s choices to buy and sell things were truly voluntary, rather than tainted by unfair bargaining conditions, the objection to commodification would fall away. What that argument misses are the dimensions of life that lie beyond consent, in the moral and civic goods that markets do not honor and money cannot buy. (Sandel 2003) [ ] the ethical principle that one should not sell one s body applies whether the market is regulated or left to the vicissitudes of capitalism. [Payments to organ donors] are ethically unacceptable [ ] despite the purported benefits of such a sale for both the buyer and the seller. [ ] Fundamental truths of our society, life and liberty, should not have monetary price (Delmonico et al. 2002). Unamenable to tradeoff thinking, new info Deep roots, harder to classify Seeming inconsistencies Large differences between societies

27 Repugnant transactions: Hard-to-explain differences? AngusReid

28 Repugnant transactions : Hard-to-explain differences? Germany: Commercial surrogacy Prostitution United States: Commercial surrogacy Prostitution

29 Repugnant transactions : Hard-to-explain differences?

30 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Gibson, Tanner and Wagner AER 2013 Propensity to (hypothetically) lie depends on (hypothetical) economic returns. Continuum of types, no extremes Baron-Leshner J. App. Psy Subjects frequently find counterfactuals for expressions of sacred values (child labor, harvesting organs, killing lives to save more lives ), but with heterogeneity across values Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant Hanselmann and Tanner JDM 2008 Thinking about taboo and tragic tradeoffs is more psychologically stressful than thinking about standard tradeoffs. See also Tetlock et al. (2000) Several other examples in Experimental philosophy review (Knobe et al. ARP 2012)

31 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant

32 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant

33 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant

34 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant

35 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant

36 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant

37 Does repugnance matter for behavior and decisions? Insights from studies on sacred values and ideology-driven cognition Kahahn et al. (WP 2013, JDM 2013) Motivated cognition: ability to solve cognitive (e.g. math) problems affected by ideology, keeping ability constant

38 Does repugnance matter for behavior and decisions? Some implications for research Moral beliefs, ideology do affect preferences, decisions, just like many other nonstandard factors (identity, equity, religion, meaning, ) Moral beliefs/concerns are of different types e.g. more or less allayed by institutional design, information, counterfactuals /tradeoffs Leads to seeming inconsistencies, heterogeneities. These influences are likely to matter in relation to the provision of incentives for prosocial behavior: a price on priceless activities, services Particularly when visceral issues are involved (e.g. body parts) We know little about this

39 Does repugnance matter for behavior and decisions? Some implications for research Hard to study these topics empirically: choices and scenarios not observed (some illegal!), reliance on hypotheticals, stated preferences But stated preferences may be more important than we thought for analyzing prosocial behavior, though for different reasons: not to predict behavior, but to understand attitudes towards incentives

40 Repugnance efficiency tradeoff in kidney procurement Does information about the efficiency gains from paying kidney donors increase approval for payments? Are there finite increases in the supply of kidney for transplants generated by payments that would lead individuals to express preference for a payment system versus an unpaid donor alternative, even if payments were consider morally problematic? Are attitudes toward different procurement systems, and payments in particular, deontological or consequentialist? In other words, is there an efficiency price for moral repugnance?