TERTIUM DATUR - PRICING, REGULATING AND INTRINSIC MOTIVATION

Beyond prices and regulations a third motivation influences human behaviour: intrinsic motivation. Under identifiable conditions, rational individuals reduce their intrinsic motivation when prices and regulations are imposed from the outside ('crowding-out effect'). Conversely, policy instruments which acknowledge intrinsic motivation and extend actors' self-determination 'crowd-in' intrinsic motivation. Empirical studies support these psychological effects. Regulations damage intrinsic motivation more than pricing; and subsidies are more, and tradable permits less, attractive than suggested by standard environmental economics. In the areas of crime prevention, social, manpower, tax and organizational policy, empirical observations can be better explained than by standard economic theory.