What is it about?
The paper identifies two reasons why it might be optimal to use a combination of rewards and punishments to incentivize effort. First, even though punishments do not have to be carried out if the desired outcome is achieved, the prospect of rewards is often still needed to get people to participate in the incentive scheme in the first place. Second, very high magnitudes of rewards or punishments alone are not credible to the participants because they know that it is too costly to implement, but a combination of them can be credible.
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Why is it important?
It is relevant for finding the best ways to incentivise workers at work place or to motivate children at school or at home where both rewards and punishments can be costly to implement.
Perspectives
Here, I speak from the perspective of a mother of three children. It is not easy to motivate children. They are acutely aware of the cost of the parents. Rewarding them with a lot of ice-cream is not credible because they know their mother likes to save money and ice-cream is not nutritious. Punishing them by taking away their dinner is not credible either because they know their mother cares a lot of about their nutrition and their mother does not like to wake up in the mid of the night and hear her kids crying hungry. I would have to announce a mild reward and a mild punishment at the same time to achieve the desired level of motivation: an extra piece of chocolate and 10 minutes of timeout otherwise are often combined and they are totally credible to my children.
Frances Lee
Loyola University Chicago
Read the Original
This page is a summary of: Costly Rewards and Punishments, The B E Journal of Theoretical Economics, September 2019, De Gruyter,
DOI: 10.1515/bejte-2018-0131.
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