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WP #: 101

Date: Dec 2014


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Working for "Warm Glow": On the Benefits and Limits of Prosocial Incentives

     This paper was published in Journal of Public Economics in 2013

    Alex Imas

    UC San Diego


Abstract:
We study whether using prosocial incentives, where effort is tied directly to charitable contributions, may lead to better performance than standard incentive schemes. In a real-effort task, individuals indeed work harder for charity than for themselves, but only when incentive stakes are low. When stakes are raised, effort increases when individuals work for themselves but not when they work for others and, as a result, the difference in provided effort disappears. Individuals correctly anticipate these effects, choosing to work for charity at low incentives and for themselves at high incentives. The results are consistent with warm glow giving and have implications for optimal incentive design.


SPI Quick Look:
People work harder the greater is the monetary benefit for them. Do people work harder the greater the monetary benefit for others(e.g. a charity)? This paper suggests otherwise: while people generally work harder if an incentive that benefit others is in place, the amount of effort exerted does not increase if the associated reward for the charity is bigger. When people are offered a chance to choose whether to work for charity or for them, they choose to work for charity rather than themselves at low incentives, but prefer the opposite when stakes are raised. Small, direct monetary compensation thus appears to induce lower effort compared to small pro-social incentives, and increasing the monetary value of pro-social incentives does not increase effort, suggesting that small pro-social incentives are as good as large ones.