Journal of Economic Perspectives—Volume 25, Number 4—Fall 2011—Pages 191–210

When and Why Incentives (Don’t) Work to Modify Behavior

Uri Gneezy, Stephan Meier, and Pedro Rey-Biel

cconomistsonomists ooftenften eemphasizemphasize tthathat ““incentivesincentives matter.”matter.” TThehe bbasicasic ““lawlaw ooff bbehavior”ehavior” isis tthathat hhigherigher incentivesincentives willwill leadlead toto moremore efforteffort andand higherhigher E pperformance.erformance. Employers,Employers, forfor eexample,xample, ooftenften uusese eextrinsicxtrinsic iincentivesncentives ttoo mmotivateotivate theirtheir employees.employees. InIn recentrecent years,years, thethe useuse ofof incentivesincentives inin behavioralbehavioral inter-inter- vventionsentions hashas becomebecome moremore popular.popular. ShouldShould studentsstudents bebe providedprovided withwith fi nancialnancial iincentivesncentives forfor increasedincreased schoolschool attendance,attendance, forfor reading,reading, oror forfor betterbetter grades?grades? WillWill fi nancialnancial incentivesincentives encourageencourage higherhigher contributionscontributions toto publicpublic goods,goods, likelike bloodblood ddonations?onations? ShouldShould programsprograms ttoo rreduceeduce ssmokingmoking oorr ttoo eencouragencourage eexercisexercise iincludenclude a mmonetaryonetary iincentive?ncentive? TheseThese applicationsapplications ofof incentivesincentives havehave provokedprovoked heatedheated debate.debate. PProponentsroponents ofof uusingsing iincentivesncentives iinn bbehavioralehavioral iinterventionsnterventions aargue,rgue, fforor eexample,xample, tthathat mmonetaryonetary iincentivesncentives cancan bebe helpfulhelpful inin gettinggetting peoplepeople toto studystudy oror exerciseexercise more.more. OOpponentspponents believebelieve thatthat usingusing incentivesincentives inin thosethose areasareas couldcould backfibackfi re,re, becausebecause eextrinsicxtrinsic incentivesincentives maymay iinn ssomeome wwayay ccrowdrowd ooutut iintrinsicntrinsic mmotivationsotivations tthathat aarere iimpor-mpor- ttantant ttoo pproducingroducing tthehe ddesiredesired bbehavior.ehavior. TThishis paperpaper proceedsproceeds byby discussingdiscussing somesome generalgeneral aspectsaspects ofof howhow extrinsicextrinsic iincentivesncentives maymay comecome intointo conflconfl ictict withwith otherother motivations.motivations. ForFor example,example, monetarymonetary iincentivesncentives fromfrom pprincipalsrincipals maymay cchangehange howhow taskstasks areare perceivedperceived byby agents.agents. IfIf incen-incen- ttivesives areare notnot largelarge enough,enough, thisthis changechange inin perceptionperception cancan leadlead toto undesiredundesired effectseffects oonn behavior.behavior. InIn otherother cases,cases, incentivesincentives mightmight havehave thethe desireddesired effectseffects inin thethe shortshort tterm,erm, bbutut ttheyhey sstilltill wweakeneaken iintrinsicntrinsic motivations.motivations. Thus,Thus, onceonce thethe incentivesincentives areare

■ UUriri GGneezyneezy iiss PProfessorrofessor ooff EEconomicsconomics aandnd Strategy,Strategy, RadyRady SchoolSchool ofof Management,Management, UUniversityniversity ooff CCalifornia–Sanalifornia–San DDiego,iego, LLaa JJolla,olla, CCalifornia.alifornia. SStephantephan MMeiereier iiss AAssociatessociate PProfessor,rofessor, CColumbiaolumbia BBusinessusiness SSchool,chool, NNewew YYorkork CCity,ity, NNewew YYork.ork. PPedroedro RRey-Bieley-Biel iiss AAssociatessociate PProfessor,rofessor, UniversitatUniversitat AutònomaAutònoma dede Barcelona,Barcelona, Barcelona,Barcelona, Spain.Spain. TheirTheir e-maile-mail addressesaddresses areare 〈[email protected]@ucsd.edu〉, 〈[email protected]@columbia.edu〉, aandnd 〈 [email protected]@uab.es〉. doi=10.1257/jep.25.4.191 192 Journal of Economic Perspectives

rremoved,emoved, ppeopleeople mmayay ppursueursue tthehe ddesiredesired ooutcomeutcome llessess eeagerly.agerly. TToo pputut iitt iinn cconcreteoncrete tterms,erms, anan incentiveincentive forfor a childchild toto readread moremore mightmight achieveachieve thatthat goalgoal inin thethe shortshort tterm,erm, bbutut tthenhen bbee ccounterproductiveounterproductive asas anan incentiveincentive forfor studentsstudents toto enjoyenjoy readingreading aandnd sseekeek iitt ooutut ooverver ttheirheir llifetimes.ifetimes. TThehe ffollowingollowing ssectionsections ooff tthehe ppaperaper tthenhen ddiscussiscuss tthehe researchresearch literatureliterature onon threethree importantimportant examplesexamples inin whichwhich monetarymonetary incentivesincentives hhaveave bbeeneen uusedsed iinn a nnonemploymentonemployment ccontextontext ttoo ffosteroster tthehe ddesiredesired bbehavior:ehavior: eeduca-duca- ttion;ion; increasingincreasing contributionscontributions toto publicpublic goods;goods; andand helpinghelping peoplepeople changechange theirtheir llifestyles.ifestyles. TheThe conclusionconclusion sumssums upup somesome lessonslessons onon whenwhen extrinsicextrinsic incentivesincentives areare mmoreore oorr llessess llikelyikely ttoo aalterlter ssuchuch bbehaviorsehaviors iinn tthehe ddesiredesired ddirections.irections.

TThehe PPotentialotential CCrowding-Outrowding-Out EffectEffect versusversus ExtrinsicExtrinsic IncentivesIncentives

MMonetaryonetary iincentivesncentives hhaveave ttwowo kkindsinds ooff eeffects:ffects: tthehe sstandardtandard ddirectirect ppricerice eeffect,ffect, wwhichhich mmakesakes tthehe iincentivizedncentivized bbehaviorehavior mmoreore aattractive,ttractive, aandnd aann iindirectndirect ppsychologicalsychological eeffect.ffect. IInn ssomeome ccases,ases, tthehe ppsychologicalsychological eeffectffect wworksorks iinn aann ooppositepposite ddirectionirection ttoo tthehe ppricerice eeffectffect aandnd ccanan ccrowdrowd ooutut tthehe iincentivizedncentivized bbehavior.ehavior. SSeveraleveral ppapersapers iinn rrecentecent yyearsears hhaveave sshownhown tthathat ssuchuch ccrowding-outrowding-out eeffectsffects ccanan bbee hhandledandled wwithith ffairlyairly sstandardtandard eeconomicconomic mmodelingodeling ooff pprincipal–agentrincipal–agent pproblemsroblems tthathat uusese nnonstandardonstandard aassumptions.ssumptions. IInn thethe modelmodel ofof BenabouBenabou andand TiroleTirole ((2006),2006), fforor eexample,xample, individualsindividuals havehave a uutilitytility functionfunction withwith threethree mainmain components:components: theythey valuevalue extrinsicextrinsic rewards,rewards, enjoyenjoy ddoingoing anan activity,activity, andand carecare aboutabout theirtheir imageimage vis-à-visvis-à-vis themselvesthemselves oror others.others. TheThe iimagemage componentcomponent dependsdepends onon thethe valuevalue theythey oror someonesomeone elseelse attributesattributes toto theirtheir iintrinsicntrinsic andand extrinsicextrinsic motivationmotivation asas a functionfunction ofof theirtheir efforteffort levellevel andand incentives.incentives. TThishis iimagemage mmotivationotivation dependsdepends onon howhow muchmuch individualsindividuals carecare forfor theirtheir reputationreputation aandnd maymay bbee aaffectedffected byby howhow publicpublic suchsuch anan imageimage is.is. IndividualIndividual preferencespreferences forfor thethe eenjoymentnjoyment ofof ttasksasks aandnd fforor tthehe iimagemage ccomponentomponent ooff ttheirheir uutilitytility mmayay ddifferiffer bbetweenetween ppeopleeople aandnd aarere aassumedssumed ttoo bbee pprivaterivate iinformation.nformation. TThishis typetype ofof modelmodel illustratesillustrates somesome principalprincipal channelschannels throughthrough whichwhich incen-incen- ttivesives cancan affectaffect agents’agents’ decisionsdecisions aboutabout effort.effort. OneOne channelchannel isis information.information. InIn a pprivate-goodrivate-good contextcontext withoutwithout imageimage concernsconcerns andand inin whichwhich thethe principalprincipal isis betterbetter iinformednformed thanthan thethe agent,agent, thethe principalprincipal chooseschooses a rewardreward levellevel basedbased onon severalseveral ffactors,actors, iincludingncluding hhowow tthehe pprincipalrincipal vviewsiews tthehe ddiffiiffi cultyculty oror attractivenessattractiveness ofof thethe tasktask ttoo bebe performedperformed andand howhow thethe principalprincipal viewsviews thethe intrinsicintrinsic motivationmotivation oror abilityability ofof tthehe agent.agent. ForFor example,example, offeringoffering incentivesincentives forfor improvedimproved academicacademic performanceperformance inin sschoolschools mmayay ssignalignal tthathat aachievingchieving a sspecifipecifi c goalgoal isis diffidiffi cult,cult, thatthat thethe tasktask isis notnot attrac-attrac- ttive,ive, oror thatthat thethe agentagent isis notnot well-suitedwell-suited forfor itit (and(and thusthus needsneeds thethe additionaladditional incentiveincentive ooff a reward).reward). Alternatively,Alternatively, offeringoffering incentivesincentives couldcould signalsignal thatthat thethe principalprincipal doesdoes nnotot trusttrust thethe agent’sagent’s intrinsicintrinsic motivation.motivation. ThisThis signalsignal willwill bebe “bad“bad news”news” forfor thethe agentagent aandnd ccanan llowerower tthehe iintrinsicntrinsic mmotivationotivation ooff tthehe aagentgent ttoo uundertakendertake tthehe ttask.ask. A secondsecond channelchannel forfor crowdingcrowding outout appearsappears whenwhen extrinsicextrinsic incentivesincentives reducereduce ootherther motivesmotives forfor undertakingundertaking thethe task,task, forfor example,example, ifif a higherhigher personalpersonal benefibenefi t aassociatedssociated withwith a certaincertain levellevel ofof prosocialprosocial behaviorbehavior affectsaffects thethe reputationalreputational valuevalue aattributedttributed toto a person’sperson’s intrinsicintrinsic andand extrinsicextrinsic motivation.motivation. ThatThat is,is, decreasingdecreasing thethe Uri Gneezy, Stephan Meier, and Pedro Rey-Biel 193

ssignalignal aboutabout a person’sperson’s prosocialprosocial preferencespreferences andand increasingincreasing thethe signalsignal aboutabout a pperson’serson’s greedinessgreediness maymay resultresult inin lowerlower imageimage motivation.motivation. InIn suchsuch cases,cases, offeringoffering hhigherigher materialmaterial rrewardsewards mmayay bbackfiackfi rree iiff tthehe eeffectffect oonn iimagemage motivationmotivation isis strongerstronger tthanhan thethe sstandardtandard ppricerice eeffect.ffect. TThishis eeffectffect mmayay ddependepend oonn tthehe eextentxtent ttoo wwhichhich tthesehese ssignalsignals aarere ppublic.ublic. TThesehese channelschannels illustrateillustrate possiblepossible behavioralbehavioral effectseffects ofof incentivesincentives andand createcreate iimplicationsmplications fforor tthehe ddesignesign ooff iincentives.ncentives.

CCrowdingrowding OOutut iinn tthehe SShorthort RunRun whenwhen IncentivesIncentives AreAre inin PlacePlace TThehe psychologypsychology literatureliterature containscontains manymany examplesexamples ofof incentivesincentives thatthat reducereduce eeffortffort oror motivationmotivation toto undertakeundertake a tasktask duringduring thethe shortshort runrun whenwhen suchsuch incentivesincentives aarere iinn pplace.lace. EEarlyarly aattemptsttempts ttoo uunderstandnderstand wwhathat mmotivatesotivates ppeopleeople ttendedended toto ffocusocus oonn twotwo areas:areas: 1)1) basicbasic biologicalbiological needsneeds ofof survivalsurvival andand procreation,procreation, andand 2)2) extrinsicextrinsic rrewardsewards oror punishment.punishment. However,However, inin thethe earlyearly 1970s,1970s, psychologistspsychologists beganbegan exploringexploring tthehe naturenature ofof intrinsicintrinsic andand extrinsicextrinsic motivation,motivation, particularlyparticularly thethe assumptionassumption thatthat iintrinsicntrinsic motivationmotivation alwaysalways pushespushes behaviorbehavior inin thethe samesame directiondirection asas extrinsicextrinsic mmotivationotivation (see(see thethe surveysurvey ofof thisthis literatureliterature inin Deci,Deci, Koestner,Koestner, andand Ryan,Ryan, 1999).1999). EEconomists’conomists’ iinterestnterest iinn ccrowdingrowding ooutut sstartedtarted aaroundround tthehe ssameame ttimeime aass iinn ppsychologysychology ddueue toto TitmussTitmuss ((1970),1970), wwhoho aarguedrgued tthathat ppayingaying ppeopleeople ttoo ddonateonate bloodblood brokebroke estab-estab- llishedished socialsocial normsnorms aaboutbout vvoluntaryoluntary ccontributionontribution andand couldcould resultresult inin a rreductioneduction ofof tthehe ffractionraction ooff ppeopleeople whowho wwishish toto donate.donate. A ggeneraleneral themetheme ofof thisthis workwork waswas thatthat incentivesincentives containcontain informationinformation relayedrelayed ffromrom tthehe pprincipalrincipal ttoo tthehe aagent,gent, aandnd ssuchuch iinformationnformation cancan provokeprovoke unexpectedunexpected eeffectsffects onon behavior.behavior. ForFor example,example, FreyFrey andand Oberholzer-GeeOberholzer-Gee (1997)(1997) showshow thatthat inin oofferingffering membersmembers ofof a communitycommunity a largelarge monetarymonetary compensationcompensation forfor a nuclearnuclear wwasteaste ssite’site’s ppresence,resence, tthehe pprincipalrincipal signalssignals thatthat thethe risksrisks involvedinvolved areare high,high, andand thusthus ccommunityommunity mmembersembers mmayay bbee llessess wwillingilling ttoo aacceptccept tthehe pplant.lant. AAgentsgents wwillill ddrawraw iinfer-nfer- eencesnces ffromrom bbothoth tthehe eexistencexistence aandnd ssizeize ooff tthehe oofferedffered iincentives.ncentives. TThehe defidefi nitionnition ofof whatwhat constitutesconstitutes “small”“small” andand “large”“large” incentivesincentives dependsdepends onon tthehe ccase,ase, bbutut tthehe mmessageessage sseemseems ttoo bbee cclear:lear: aass GGneezyneezy aandnd RRustichini’sustichini’s ((2000a)2000a) ttitleitle ssuggests,uggests, “Pay“Pay enough—orenough—or don’tdon’t paypay atat all.”all.” InIn oneone ofof theirtheir experiments,experiments, GneezyGneezy andand RRustichiniustichini ((2000a)2000a) ppresentresent fi eldeld evidenceevidence thatthat highhigh schoolschool studentsstudents whowho collectedcollected ddonationsonations forfor a charitycharity inin a door-to-doordoor-to-door fund-raisingfund-raising campaigncampaign investedinvested moremore eeffortffort whenwhen theythey werewere notnot compensatedcompensated forfor itit thanthan whenwhen a smallsmall compensationcompensation wwasas oofferedffered toto them.them. OnceOnce compensationcompensation forfor efforteffort waswas offered,offered, higherhigher paymentpayment rresultedesulted inin higherhigher effort.effort. ForFor mostmost tasks,tasks, ifif incentivesincentives areare largelarge enough,enough, theirtheir directdirect ppricerice eeffectffect wwillill bbee llargerarger thanthan thethe crowding-outcrowding-out effecteffect inin thethe shortshort run—althoughrun—although aann iinterestingnteresting exceptionexception arisesarises wwhenhen iincentivesncentives aarere ssoo hhighigh tthathat ppeopleeople mmayay ““chokechoke uundernder ppressure”ressure” (Ariely,(Ariely, GGneezy,neezy, Lowenstein,Lowenstein, andand Mazar,Mazar, 2009).2009). However,However, incentivesincentives ccanan bbackfiackfi rere eveneven inin thethe shortshort runrun inin manymany situations.situations.

CCrowdingrowding OOutut aafterfter IIncentivesncentives AArere RemovedRemoved IIff incentivesincentives signalsignal somesome formform ofof “bad“bad news,”news,” agentsagents whowho receivereceive incentivesincentives wwillill updateupdate theirtheir beliefsbeliefs aboutabout thethe task,task, theirtheir ownown type,type, oror theirtheir assessmentassessment ofof 194 Journal of Economic Perspectives

ttheirheir principal.principal. AsAs a result,result, theirtheir motivationmotivation toto performperform thethe tasktask withoutwithout thethe aadditionaldditional incentiveincentive cancan bebe reducedreduced permanently.permanently. BecauseBecause thethe standardstandard incen-incen- ttiveive effecteffect isis gonegone inin thethe longlong runrun (we(we defidefi nene thethe longlong runrun asas afterafter thethe incentivesincentives aarere rremoved),emoved), eeffortffort wwillill bbee llowerower tthanhan iitt wwasas bbeforeefore eextrinsicxtrinsic iincentivesncentives wwereere ooffered.ffered. IInn eeducationalducational ssettings,ettings, nnegativeegative llong-runong-run eeffectsffects oonn students’students’ joyjoy ofof llearningearning mightmight bebe troublesome,troublesome, asas incentiveincentive programsprograms areare oftenoften onlyonly temporarytemporary aandnd areare restrictedrestricted toto certaincertain teststests oror tasks.tasks. InIn providingproviding incentivesincentives forfor contribu-contribu- ttionion ttoo ppublicublic ggoods,oods, nnegativeegative llong-runong-run eeffectsffects oonn ((intrinsic)intrinsic) mmotivationotivation ccouldould aalsolso backfibackfi re.re. ForFor example,example, MeierMeier (2007a)(2007a) showsshows inin a fi eldeld experimentexperiment thatthat aalthoughlthough a matchingmatching incentiveincentive (a(a 2525 oror 5050 percentpercent matchmatch rate)rate) increasesincreases dona-dona- ttionsions inin thethe shortshort run,run, donationsdonations decreasedecrease belowbelow thethe pre-incentivepre-incentive periodperiod inin thethe llongong run.run. TheThe netnet effecteffect overover timetime ofof providingproviding thethe matchingmatching incentiveincentive isis eveneven nnegative.egative. GGneezyneezy andand RustichiniRustichini (2000b)(2000b) provideprovide anan exampleexample inin whichwhich behaviorbehavior isis nnotot justjust a functionfunction ofof thethe currentcurrent incentives,incentives, butbut maymay bebe affectedaffected byby thethe incen-incen- ttivesives offeredoffered inin previousprevious periods.periods. InIn theirtheir experiment,experiment, a daycaredaycare beganbegan chargingcharging llate-comingate-coming parentsparents a smallsmall fi nene ofof 1010 NewNew IsraeliIsraeli shekelsshekels (about(about $3$3 atat thethe time).time). TThishis resultedresulted inin anan increaseincrease inin thethe numbernumber ofof latelate pick-upspick-ups eveneven inin thethe shortshort rrun,un, thatthat is,is, whilewhile thethe incentivesincentives werewere present.present. OneOne interpretationinterpretation ofof thisthis resultresult iiss information:information: thethe parentsparents diddid notnot initiallyinitially knowknow howhow importantimportant itit waswas toto arrivearrive oonn time.time. TheThe contractcontract specifispecifi eded thatthat theythey shouldshould pickpick theirtheir childrenchildren upup onon timetime bbutut failedfailed toto specifyspecify thethe penaltypenalty ifif theythey diddid not.not. TheThe distributiondistribution ofof thethe parents’parents’ bbeliefseliefs regardingregarding howhow badbad itit waswas toto bebe latelate maymay havehave includedincluded badbad scenariosscenarios (for(for eexample,xample, “the“the teacherteacher willwill makemake mymy childchild suffer”).suffer”). OnceOnce a smallsmall fi nene waswas imposed,imposed, tthehe contractcontract waswas completecomplete inin thatthat beingbeing latelate waswas priced.priced. TheThe relativelyrelatively smallsmall fi nene ssignaledignaled toto parentsparents thatthat arrivingarriving latelate waswas notnot thatthat important.important. ThisThis newnew piecepiece ofof iinformation—thatnformation—that itit waswas notnot soso badbad toto bebe late—didlate—did notnot disappeardisappear onceonce thethe fi nnee waswas rremoved.emoved. Indeed,Indeed, GneezyGneezy andand RustichiniRustichini (2000b)(2000b) foundfound thatthat eveneven inin thethe longlong run,run, aafterfter thethe fi nene waswas removed,removed, parentsparents whowho hadhad facedfaced thethe fi nene werewere moremore likelylikely toto pickpick uupp theirtheir childrenchildren latelate thanthan werewere thosethose inin thethe controlcontrol group.group. OnceOnce thethe messagemessage hashas bbeeneen sentsent thatthat beingbeing onon timetime isis notnot thatthat important,important, itit isis hardhard toto revertrevert backback toto thethe ooriginalriginal levellevel ofof arrivingarriving late.late. OOff ccourseourse tthehe ccrowding-outrowding-out eevidencevidence ddiscussediscussed ddoesoes nnotot mmeanean tthathat uusingsing iincen-ncen- ttivesives ttoo oobtainbtain bbehavioralehavioral cchangeshanges wwillill aalwayslways bbee ccounterproductive.ounterproductive. SSometimesometimes iitt iiss eenoughnough thatthat thethe incentivesincentives workwork inin thethe shortshort run.run. EvenEven inin thethe longlong run,run, sometimessometimes iincentivesncentives willwill fosterfoster goodgood habits.habits. ForFor example,example, incentiveincentive programsprograms maymay provideprovide tthehe initialinitial motivationmotivation forfor a healthyhealthy lifestyle.lifestyle. OnceOnce individualsindividuals experienceexperience thethe posi-posi- ttiveive aspectsaspects ofof a healthyhealthy lifestyle,lifestyle, perhapsperhaps theirtheir motivationmotivation willwill increaseincrease enoughenough toto hhelpelp themthem ccontinueontinue theirtheir improvedimproved habitshabits eveneven withoutwithout thethe extrinsicextrinsic motivation,motivation, aandnd tthushus iincentivesncentives maymay kick-startkick-start thethe intendedintended behavior.behavior. TheThe followingfollowing sectionssections uusese tthreehree eexamplesxamples ttoo ddiscussiscuss tthehe ttensionension bbetweenetween positivepositive andand negativenegative effectseffects ofof iincentives.ncentives. WhereasWhereas mostmost eempiricalmpirical sstudiestudies aanalyzenalyze whether iincentivesncentives backfibackfi re,re, thethe eempiricalmpirical aandnd ttheoreticalheoretical literatureliterature nownow offersoffers a clearerclearer picturepicture asas toto when iincen-ncen- ttivesives ddoo aandnd ddoo nnotot wwork.ork. When and Why Incentives (Don’t) Work to Modify Behavior 195

IIncentivesncentives iinn EEducationducation

IItt maymay seemseem thatthat designingdesigning incentiveincentive mechanismsmechanisms toto improveimprove educationeducation sshouldhould bebe relativelyrelatively straightforward.straightforward. StudentsStudents maymay investinvest tootoo littlelittle efforteffort inin theirtheir oownwn educationeducation becausebecause theythey overlyoverly discountdiscount thethe future,future, havehave time-inconsistenttime-inconsistent ppreferences,references, oror underestimateunderestimate thethe returnreturn onon education.education. ExtrinsicExtrinsic incentivesincentives cancan tthenhen provideprovide immediateimmediate returnsreturns thatthat givegive anan extraextra motivationmotivation toto study.study. Similarly,Similarly, iincentivesncentives cancan givegive parentsparents andand teachersteachers additionaladditional reasonsreasons toto putput moremore efforteffort intointo eeducatingducating childrenchildren oror simplysimply makingmaking suresure thethe kidskids getget toto schoolschool (Glewwe,(Glewwe, Ilias,Ilias, andand KKremer,remer, 2010).2010). HHowever,owever, empiricalempirical resultsresults suggestsuggest thatthat positivepositive effectseffects fromfrom thesethese kindskinds ofof iincentivesncentives areare ffarar ffromrom ccertain.ertain. OOpponentspponents ooff eextrinsicxtrinsic iincentivesncentives eemphasizemphasize tthathat fi nancialnancial incentivesincentives maymay crowdcrowd outout otherother underlyingunderlying reasonsreasons forfor educationaleducational deci-deci- ssions.ions. AnAn extremeextreme viewview isis givengiven byby KohnKohn (1999),(1999), whowho refersrefers toto incentivesincentives providedprovided iinn eeducationducation asas ““bribes.”bribes.” ManyMany eeducatorsducators believebelieve payingpaying studentsstudents isis morallymorally wrong.wrong. OOnene wwayay ttoo rrephraseephrase thisthis claimclaim iiss ttoo aarguergue tthathat oonene ooff tthehe ggoalsoals ooff sschoolschools iiss ttoo iincreasencrease thethe importanceimportance ofof iintrinsicntrinsic motivation.motivation. WeWe ddoo nnotot ddiscussiscuss tthishis aargumentrgument iinn tthishis ppaper.aper. A numbernumber ofof recentrecent studiesstudies havehave evaluatedevaluated extrinsicextrinsic incentivesincentives usingusing fi eeldld eexperimentsxperiments iinn sschools.chools. AAlthoughlthough iitt iiss sstilltill eearlyarly ttoo rreacheach rrock-solidock-solid cconclusionsonclusions aaboutbout wwhetherhether aandnd hhowow iincentivesncentives wworkork iinn eeducation,ducation, tthehe eevidencevidence pprovidesrovides iimpor-mpor- ttantant iinsightsnsights aaboutbout wwhenhen ssuchuch iincentivesncentives aarere mmoreore llikelyikely ttoo wwork.ork. TThehe eempiricalmpirical eevidencevidence ffromrom llarge-scalearge-scale fi eldeld eexperimentsxperiments sseemseems ttoo sshow:how: 11)) iincentivesncentives wworkork wwellell iinn iincreasingncreasing aattendancettendance aandnd eenrollment;nrollment; 22)) iincentivesncentives hhaveave mmixedixed rresultsesults oonn eeffortffort aandnd aachievements;chievements; aandnd 33)) iincentivesncentives sseemeem ttoo wworkork fforor ssomeome sstudentstudents bbutut nnotot fforor oothers.thers. WWhenhen rreviewingeviewing tthehe eevidencevidence oobtainedbtained ffromrom tthesehese fi eldeld sstudies,tudies, kkeepeep iinn mmindind tthathat mmostost iincentivencentive sschemeschemes iinn tthehe fi eldeld areare aalreadylready ddesignedesigned ttoo mmitigateitigate ppossibleossible ddetrimentaletrimental eeffects.ffects. IInn pparticular,articular, mmostost iincentivesncentives aarere rrelativelyelatively llarge,arge, wwithith tthehe ggoaloal ooff eensuringnsuring tthehe ppricerice eeffectffect iiss llargerarger tthanhan a ppotentialotential nnegativeegative ccrowding-outrowding-out eeffect.ffect.

IIncentivesncentives fforor AAttendancettendance aandnd EEnrollmentnrollment AAnn iimportantmportant ccauseause ooff ppooroor ffamilies’amilies’ uunderinvestmentnderinvestment iinn eeducationducation fforor cchildrenhildren iiss tthehe hhighigh oopportunitypportunity ccostost ooff ssendingending kkidsids ttoo sschool.chool. TTransfersransfers ttoo ssuchuch rrelativelyelatively ppooroor ffamilies,amilies, ccontingentontingent oonn rregularegular aattendancettendance aatt sschool,chool, ccanan ooffsetffset ssuchuch oopportu-pportu- nnityity ccosts.osts. TThehe pprogramrogram PPROGRESAROGRESA iinn MMexicoexico iiss aann eexamplexample ((Behrman,Behrman, SSengupta,engupta, aandnd TTodd,odd, 22005;005; SSchultz,chultz, 22004).004). TThehe pprogramrogram ppaidaid oonn aaverageverage $$5555 a mmonthonth ((overover oone-fine-fi fthfth ooff tthehe aaverageverage ffamilyamily iincome)ncome) fforor ffamiliesamilies wwhosehose cchildrenhildren aattendedttended sschool.chool. TThehe eevaluationvaluation ooff tthehe fi rstrst yyearsears ooff tthehe pprogramrogram sshowshows sschoolchool eentryntry aatt eearlierarlier aages,ges, llessess ggraderade rrepetition,epetition, bbetteretter ggraderade pprogression,rogression, llowerower ddrop-outrop-out rrates,ates, aandnd hhigherigher sschoolchool rreentryeentry aamongmong ddrop-outs.rop-outs. PParticularlyarticularly nnoteworthyoteworthy aarere tthehe rreductioneduction ooff ddrop-outrop-out rratesates dduringuring tthehe ttransitionransition ffromrom pprimaryrimary ttoo ssecondaryecondary sschool,chool, aandnd tthathat ggraderade pprogres-rogres- ssionion ooccurredccurred eevenven wwithith yyoungerounger ssiblingsiblings wwhoho ddoo nnotot rreceiveeceive eeducationalducational iincentivesncentives tthroughhrough tthehe pprogram.rogram. TThishis llastast fi ndingnding ssuggestsuggests a fforward-lookingorward-looking bbehaviorehavior oonn tthehe ppartart ooff tthehe pparents.arents. 196 Journal of Economic Perspectives

TTwowo programsprograms inin Colombia,Colombia, PACESPACES andand FamiliasFamilias enen Acción,Acción, randomlyrandomly assignedassigned vvouchersouchers coveringcovering halfhalf thethe costcost ofof secondarysecondary schoolschool inin exchangeexchange forfor adequateadequate aacademiccademic pprogressrogress (although(although thethe requisitesrequisites werewere soso lowlow thatthat “progress”“progress” essentiallyessentially mmeanteant schoolschool attendance).attendance). Angrist,Angrist, Bettinger,Bettinger, andand KremerKremer (2006)(2006) andand Angrist,Angrist, BBettinger,ettinger, Bloom,Bloom, King,King, andand KremerKremer (2002)(2002) fi ndnd thatthat winnerswinners ofof thethe vouchervoucher werewere aaboutbout 1010 percentpercent moremore likelylikely toto fi nishnish thethe eightheighth gradegrade andand scoredscored 0.20.2 standardstandard ddeviationseviations higherhigher onon achievementachievement tests.tests. TheyThey alsoalso fi ndnd evidenceevidence thatthat subsidizedsubsidized sstudentstudents workedworked lessless outsideoutside thethe schoolschool andand werewere lessless likelylikely toto cohabitcohabit oror marrymarry aass teenagers.teenagers. InIn anotheranother examinationexamination ofof thesethese programsprograms inin Colombia,Colombia, Barrera-Barrera- OOsorio,sorio, BBertrand,ertrand, Linden,Linden, andand Perez-CallePerez-Calle (2008)(2008) comparecompare thethe effectseffects ofof subsidiessubsidies cconditionalonditional onon schoolschool attendanceattendance toto thosethose conditionalconditional onon graduation.graduation. InIn bothboth cases,cases, ttheyhey fi ndnd increasesincreases inin attendance,attendance, passpass rates,rates, enrollment,enrollment, graduationgraduation rates,rates, andand mmatriculationatriculation toto tertiarytertiary institutions.institutions. MostMost interestingly,interestingly, theythey alsoalso fi ndnd evidenceevidence thatthat ssubsidiesubsidies cancan ccreatereate ppeereer eeffectsffects aamongmong ssiblingsiblings nnotot rreceivingeceiving tthehe ssubsidy,ubsidy, bbut,ut, aatt tthehe ssameame ttime,ime, ssomeome llevelevel ooff rresponsibilityesponsibility rreallocationeallocation occursoccurs withinwithin householdshouseholds sincesince ssiblingsiblings ofof cchildrenhildren receivingreceiving thethe subsidysubsidy tendtend toto workwork moremore aandnd aattendttend sschoolchool lless.ess. OOverall,verall, thethe evaluationevaluation ofof programsprograms usingusing incentivesincentives toto rewardreward enrollmentenrollment aandnd schoolschool attendanceattendance inin thethe shortshort runrun isis positive.positive. TheseThese incentivesincentives combinecombine ttwowo characteristicscharacteristics thatthat offsetoffset mostmost ofof thethe worriesworries ofof opponentsopponents ofof incentivesincentives inin eeducation.ducation. First,First, thethe programsprograms offeroffer incentivesincentives forfor concreteconcrete tasks.tasks. StudentsStudents eithereither aattendttend schoolschool andand receivereceive thethe reward,reward, oror not.not. TheseThese programsprograms dodo notnot involveinvolve a ccomplicatedomplicated objectiveobjective thatthat studentsstudents maymay notnot knowknow howhow toto achieve,achieve, andand neitherneither areare ttherehere diffidiffi cultiesculties inin measuringmeasuring andand rewardingrewarding thethe achievementachievement ofof thethe objective.objective. SSecond,econd, incentivesincentives areare offeredoffered toto familiesfamilies andand notnot toto thethe childrenchildren specifispecifi cally,cally, andand tthushus thethe incentivesincentives dodo notnot directlydirectly affectaffect thethe motivationmotivation ofof thosethose beingbeing educated.educated. TTherefore,herefore, thethe possibilitypossibility thatthat childrenchildren maymay substitutesubstitute theirtheir desiredesire toto learnlearn forfor theirtheir ddesireesire toto receivereceive thethe rewardreward isis ofof lessless concern.concern.

IIncentivesncentives fforor AAcademiccademic AAchievementchievement CComparedompared wwithith tthehe eevidencevidence onon aattendancettendance andand enrollment,enrollment, thethe evidenceevidence oonn incentivesincentives offeredoffered forfor academicacademic performanceperformance isis moremore mixedmixed andand dependsdepends onon tthehe characteristicscharacteristics ofof thethe tasktask beingbeing rewarded.rewarded. BettingerBettinger (2010)(2010) studiesstudies directdirect iincentivesncentives forfor higherhigher gradesgrades inin primaryprimary schoolsschools inin Coshocton,Coshocton, Ohio,Ohio, inin whichwhich a ffoundationoundation sponsoredsponsored a studystudy soso thatthat studentsstudents couldcould receivereceive asas muchmuch asas $100.$100. TheThe rrandomizationandomization waswas suchsuch thatthat allall studentsstudents inin a givengiven gradegrade atat a givengiven schoolschool eithereither wwereere eligibleeligible forfor thethe incentive,incentive, oror not.not. HisHis evidenceevidence showsshows thatthat incentivesincentives offeredoffered fforor hhigherigher gradesgrades increasedincreased mathmath scoresscores butbut notnot thosethose ofof otherother subjects,subjects, suchsuch asas rreadingeading oror socialsocial science.science. OneOne possiblepossible interpretationinterpretation ofof thesethese results,results, compatiblecompatible wwithith researchresearch inin ppsychology,sychology, ssuggestsuggests tthathat eexternalxternal iincentivesncentives mmayay bbee mmoreore eeffectiveffective iinn concreteconcrete subjects,subjects, suchsuch asas primaryprimary schoolschool math,math, thanthan inin moremore conceptualconceptual topics,topics, ssuchuch aass rreadingeading aandnd ssocialocial sciencessciences (Rouse,(Rouse, 1998).1998). FFryerryer (2010)(2010) conductedconducted randomizedrandomized incentiveincentive experimentsexperiments inin publicpublic schoolsschools iinn ffourour uurbanrban schoolschool districts—Chicago,districts—Chicago, Dallas,Dallas, NewNew YorkYork City,City, andand Washington,Washington, DD.C.—during.C.—during thethe 2007–20082007–2008 andand 2008–20092008–2009 schoolschool years.years. ThereThere waswas variationvariation Uri Gneezy, Stephan Meier, and Pedro Rey-Biel 197

iinn whatwhat educationaleducational inputsinputs (like(like attendanceattendance oror readingreading a book)book) oror outputsoutputs (like(like ggrades)rades) werewere rewarded,rewarded, andand howhow oftenoften andand howhow muchmuch studentsstudents werewere paid.paid. Overall,Overall, tthehe studystudy distributeddistributed $6.3$6.3 millionmillion inin incentiveincentive paymentspayments toto roughlyroughly 38,00038,000 studentsstudents iinn 226161 sschools.chools. OneOne fi ndingnding waswas thatthat incentivesincentives offeredoffered forfor educationaleducational outputs,outputs, ssuchuch aass bbetteretter ggrades,rades, aarere llessess eeffectiveffective tthanhan iincentivesncentives forfor educationaleducational inputs,inputs, suchsuch aass attendance,attendance, goodgood behavior,behavior, oror wearingwearing uniforms.uniforms. Again,Again, oneone possiblepossible reasonreason isis tthathat sstudentstudents cancan controlcontrol inputsinputs directlydirectly but,but, eveneven ifif theythey areare motivatedmotivated byby rewards,rewards, mmayay nnotot kknownow hhowow ttoo tturnurn ttheirheir eeffortsfforts iintonto ssuccess.uccess. OOverall,verall, wwhilehile tthehe rresultsesults ppointoint iinn somesome interestinginteresting directions,directions, theythey seemseem toto showshow thatthat thethe useuse ofof thesethese kindskinds ofof iincentivesncentives iinn eeducationducation iiss nnotot ((yet)yet) ccostost eeffective.ffective. RRodriguez-Planasodriguez-Planas (2010)(2010) analyzesanalyzes thethe effectseffects ofof thethe QuantumQuantum OpportunityOpportunity PProgram,rogram, whosewhose objectiveobjective waswas toto increaseincrease thethe likelihoodlikelihood ofof adolescentsadolescents completingcompleting hhighigh schoolschool andand enrollingenrolling inin postsecondarypostsecondary schoolschool throughthrough a combinationcombination ofof eextrinsicxtrinsic rewardsrewards andand mentoring.mentoring. TheThe programprogram assignedassigned studentsstudents toto mentorsmentors wwhoho werewere paidpaid forfor thethe enrollmentenrollment ofof studentsstudents inin programprogram activities.activities. TheThe require-require- mmentsents combinedcombined educational,educational, cultural,cultural, andand communitycommunity serviceservice activities.activities. EnrolledEnrolled sstudentstudents werewere paidpaid $1.25$1.25 forfor everyevery hourhour theythey spentspent onon suchsuch activities,activities, asas wellwell asas a mmatchingatching amountamount ifif theythey earnedearned a diplomadiploma andand enrolledenrolled inin college.college. TheThe originaloriginal ppilotilot versionversion ofof thisthis programprogram waswas donedone inin fi veve U.S.U.S. locationslocations andand lastedlasted forfor fourfour yyears.ears. Canada,Canada, thethe UnitedUnited Kingdom,Kingdom, France,France, Spain,Spain, andand ItalyItaly havehave allall runrun oror areare rrunningunning similarsimilar programsprograms (Angrist,(Angrist, Lang,Lang, andand Oreopoulos,Oreopoulos, 2006).2006). EarlyEarly evalua-evalua- ttionion ofof thesethese programsprograms showsshows thatthat incentivesincentives cancan bebe effectiveeffective inin improvingimproving somesome mmeasureseasures ofof academicacademic performance,performance, butbut thatthat theythey areare mostmost effieffi cientcient whenwhen combinedcombined wwithith mentoringmentoring measures,measures, perhapsperhaps becausebecause thethe mentoringmentoring helpshelps toto makemake thethe goalsgoals mmoreore concrete.concrete. IInn a fi eldeld experiment,experiment, Levitt,Levitt, List,List, andand SadoffSadoff (2010a,(2010a, b)b) testedtested thethe effecteffect ofof pperformance-basederformance-based incentivesincentives onon educationaleducational achievementachievement inin a low-performinglow-performing sschoolchool districtdistrict inin Chicago.Chicago. TheyThey implementedimplemented a randomizedrandomized fi eldeld experimentexperiment aamongmong highhigh schoolschool freshmenfreshmen thatthat providedprovided monthlymonthly fi nancialnancial incentivesincentives forfor mmeetingeeting aann aachievementchievement sstandardtandard bbasedased oonn mmultipleultiple mmeasureseasures ooff pperformanceerformance ((nono moremore thanthan oneone unexcusedunexcused absenceabsence inin thethe month,month, nono all-dayall-day suspensionssuspensions inin tthehe month,month, andand letterletter gradesgrades ofof C oror higherhigher inin allall classes).classes). WithinWithin thethe design,design, theythey ccomparedompared thethe effectivenesseffectiveness ofof varyingvarying thethe rewardreward recipientrecipient (students(students oror parents)parents) aandnd thethe incentiveincentive structurestructure (piece(piece raterate oror lottery).lottery). InIn thethe piecepiece raterate treatments,treatments, sstudentstudents whowho meetmeet thethe monthlymonthly achievementachievement standardsstandards qualifiqualifi eded forfor a $50$50 reward.reward. IInn tthehe llotteryottery treatments,treatments, studentsstudents whowho meetmeet thethe monthlymonthly achievementachievement standardsstandards qqualifiualifi eded forfor a lotterylottery inin whichwhich theythey hadhad aboutabout a 1010 percentpercent probabilityprobability ofof winningwinning $$500.500. IfIf a studentstudent metmet thethe achievementachievement standardsstandards everyevery month,month, thatthat studentstudent (or(or tthehe parentsparents ofof thethe student)student) receivedreceived anan expectedexpected valuevalue ofof $400$400 overover thethe coursecourse ofof tthehe eight-montheight-month program.program. OOverallverall effectseffects ofof thethe incentivesincentives werewere modest,modest, withwith a signifisignifi cantcant effecteffect forfor sstudentstudents onon thethe thresholdthreshold ofof meetingmeeting thethe achievementachievement standard.standard. TheseThese studentsstudents ccontinuedontinued toto ooutperformutperform ttheirheir ccontrol-groupontrol-group ppeerseers iinn tthehe llongong rrunun aafterfter tthehe iincen-ncen- ttivesives eendednded iinn tthehe sstudents’tudents’ ssophomoreophomore yyear.ear. LLevitt,evitt, LList,ist, aandnd SSadoffadoff ((2010a,2010a, bb)) 198 Journal of Economic Perspectives

ssuggestuggest thatthat incentivesincentives thatthat induceinduce sustainedsustained efforteffort onon multiplemultiple performanceperformance mmeasureseasures cancan leadlead toto gainsgains inin humanhuman capitalcapital thatthat havehave lastinglasting returns.returns. TThehe resultsresults ofof thesethese experimentsexperiments areare somewhatsomewhat disappointing:disappointing: givengiven thethe rela-rela- ttivelyively smallsmall effecteffect sizessizes itit isis notnot clearclear thatthat thesethese programsprograms representrepresent thethe bestbest returnreturn oonn iinvestment.nvestment. YetYet thesethese areare pioneeringpioneering attemptsattempts thatthat diddid achieveachieve somesome changeschanges iinn thethe investmentinvestment inin education.education. WeWe seesee thisthis asas encouragingencouraging futurefuture researchresearch whichwhich sshouldhould cconcentrateoncentrate oonn mmakingaking tthehe iincentivesncentives mmoreore ccostost eeffective.ffective.

VVariationariation aacrosscross SubgroupsSubgroups inin thethe EffectsEffects ofof IncentivesIncentives TThehe LLevitt,evitt, LList,ist, aandnd SSadoffadoff ((2010a,2010a, bb)) sstudytudy bbringsrings uuss ttoo aanothernother iimportantmportant pparameterarameter inin tthehe pprovisionrovision ofof iincentives:ncentives: variationsvariations inin thethe effectivenesseffectiveness ofof thethe iincentivesncentives forfor differentdifferent subgroups.subgroups. AngristAngrist andand LavyLavy (2009)(2009) discussdiscuss a school-basedschool-based rrandomizedandomized experimentexperiment inin IsraelIsrael inin whichwhich studentsstudents receivedreceived a step-by-stepstep-by-step seriesseries ofof rrewards,ewards, wwhichhich ccouldould ttotalotal aass mmuchuch aass $$2,400,2,400, fforor ccompletionompletion ooff tthehe bagrut—tthehe offioffi - ccialial mmatriculationatriculation ccertifiertifi catecate andand a pprerequisitererequisite forfor ppost-secondaryost-secondary schooling—andschooling—and fforor pperformanceerformance oonn tthehe bbagrutagrut eexams.xams. TTheyhey fi ndnd thatthat thethe provisionprovision ofof incentivesincentives ledled ttoo a substantialsubstantial increaseincrease inin certificertifi cationcation ratesrates andand inin collegecollege attendanceattendance forfor girls,girls, butbut hhadad nono effecteffect onon boys.boys. TheyThey argueargue thatthat femalefemale matriculationmatriculation ratesrates increasedincreased partlypartly bbecauseecause girlsgirls whowho receivedreceived thethe incentivesincentives devoteddevoted extraextra timetime toto examexam preparation.preparation. OOtherther sstudiestudies hhaveave aalsolso sshownhown ssuchuch ggenderender ddifferencesifferences iinn tthehe rreactioneaction ttoo iincentivesncentives ((CrosonCroson aandnd GGneezy,neezy, 22009).009). TThehe eeffectffect ofof incentivesincentives alsoalso seemsseems toto dependdepend onon priorprior academicacademic achievement.achievement. LLeuven,euven, Osteerbeck,Osteerbeck, andand vanvan derder KlauwKlauw (2010)(2010) foundfound thatthat providingproviding incentivesincentives ttoo fi rrst-yearst-year economicseconomics andand businessbusiness studentsstudents atat thethe UniversityUniversity ofof AmsterdamAmsterdam forfor ppassingassing allall fi rst-yearrst-year requirementsrequirements withinwithin oneone yearyear hadhad a positivepositive effecteffect onon thethe aacademiccademic pperformanceerformance ooff tthehe mmostost aable,ble, bbutut a nnegativeegative iimpactmpact oonn tthehe aachievementchievement ooff low-abilitylow-ability students.students. Moreover,Moreover, afterafter threethree years,years, thesethese effectseffects hadhad increased,increased, ssuggestinguggesting tthehe ppresenceresence ooff ddynamicynamic sspillovers.pillovers. TThehe BBettingerettinger ((2010)2010) sstudytudy ooff iincen-ncen- ttivesives forfor higherhigher gradesgrades discusseddiscussed aboveabove reportsreports similarsimilar results,results, showingshowing thatthat mathmath sscorescores iimprovemprove oonlynly fforor sstudentstudents aatt tthehe ttopop ooff tthehe ddistribution.istribution.

WWhathat HHappensappens WWhenhen tthehe IIncentivesncentives AArere RRemoved?emoved? EEvaluatingvaluating tthehe llong-runong-run eeffectsffects ooff iincentivesncentives oonn eeducationducation iiss a ccomplicatedomplicated iissue,ssue, andand becausebecause manymany incentivesincentives programsprograms inin educationeducation areare stillstill quitequite recent,recent, wwee maymay stillstill lacklack goodgood data.data. EarlyEarly studies,studies, suchsuch asas thethe Cornwell,Cornwell, Mustard,Mustard, andand SSridharridhar (2006)(2006) studystudy ofof merit-basedmerit-based scholarshipsscholarships forfor studentsstudents enteringentering collegescolleges aandnd ttechnicalechnical sschoolschools iinn GGeorgia,eorgia, aarguergue tthathat mmeriterit sscholarshipscholarships maymay produceproduce hhigherigher gradesgrades butbut thatthat whenwhen studentsstudents cancan choosechoose theirtheir academicacademic curriculum,curriculum, suchsuch sscholarshipscholarships alsoalso leadlead toto thethe selectionselection ofof easiereasier courses.courses. ThisThis shiftingshifting ofof attentionattention ffromrom tthehe ddesiredesired ooutcomeutcome ttoo tthehe mmeasurableeasurable ooutputsutputs iiss nnotot uuniquenique ttoo tthehe mmerit-erit- bbasedased scholarshipscholarship programsprograms andand shouldshould receivereceive attentionattention whenwhen implementingimplementing aanyny intervention.intervention. IItt doesdoes seemseem clearclear thatthat thethe removalremoval ofof incentivesincentives needneed notnot necessarilynecessarily decreasedecrease aacademiccademic pperformance.erformance. FForor eexample,xample, JJacksonackson ((2010)2010) ffoundound tthathat iinn a TTexasexas pprogramrogram When and Why Incentives (Don’t) Work to Modify Behavior 199

iinn wwhichhich sstudentstudents ccouldould rreceiveeceive iincentivesncentives ooff $$100–$500100–$500 fforor hhighigh sscorescores oonn aadvanceddvanced pplacementlacement eexaminationsxaminations iinn tthehe 1111tthh aandnd 1212tthh ggraderade (and(and anotheranother componentcomponent ofof thethe pprogramrogram ppaidaid forfor teacherteacher trainingtraining andand extraextra prepprep classes),classes), thethe studentsstudents whowho werewere ppaidaid forfor passingpassing advancedadvanced placementplacement examsexams attendedattended collegecollege inin greatergreater numbers,numbers, hhadad a hhigherigher ccollegeollege gradegrade pointpoint average,average, andand werewere moremore likelylikely toto rremainemain iinn ccollegeollege bbeyondeyond ttheirheir ffreshmanreshman yyear.ear. TThehe ccurrenturrent eevidencevidence oonn tthehe eeffectsffects ooff fi nnancialancial incentivesincentives inin educationeducation iindicatesndicates moderatemoderate short-runshort-run positivepositive effectseffects onon somesome subgroupssubgroups ofof students,students, atat lleasteast whilewhile thethe incentivesincentives areare inin place.place. InIn somesome cases,cases, thesethese short-runshort-run effectseffects areare iimportant.mportant. ForFor example,example, ifif keepingkeeping kidskids inin schoolschool andand offoff thethe streetsstreets isis important,important, oorr ifif thethe goalgoal isis toto teachteach a particularparticular skillskill (learning(learning toto read),read), short-runshort-run successsuccess mmayay bebe enough.enough. WeWe needneed moremore studiesstudies toto betterbetter understandunderstand whowho shouldshould bbee iincen-ncen- ttivizedivized iinn tthehe eeducationducation ssystem—students,ystem—students, pparents,arents, tteachers,eachers, sschools?—andchools?—and wwhathat ttasksasks sshouldhould bbee rrewarded,ewarded, wwithith pparticulararticular aattentionttention ppaidaid ttoo tthehe ddistinctionistinction bbetweenetween cconcreteoncrete aandnd aabstractbstract ttasks.asks. TThehe eextentxtent ttoo wwhichhich ccrowdingrowding ooutut aafterfter iincentivesncentives aarere rremovedemoved sshouldhould bbee a cconcernoncern iinn tthehe aarearea ooff eeducationducation sstilltill rrequiresequires ffurtherurther aandnd mmoreore systematicsystematic research.research.

IIncentivesncentives fforor PProsocialrosocial BehaviorBehavior

PProsocialrosocial behaviorbehavior includesincludes voluntaryvoluntary contributionscontributions toto publicpublic goods,goods, suchsuch asas ddonatingonating blood,blood, volunteering,volunteering, oror protectingprotecting thethe eenvironment.nvironment. AAlthoughlthough a sstandardtandard sselfielfi sshh iindividualndividual wouldwould notnot contributecontribute toto a publicpublic good,good, eveneven nonstandard,nonstandard, proso-proso- ccialial ppreferencesreferences (such(such asas altruismaltruism oror reciprocity)reciprocity) areare oftenoften notnot enoughenough toto reachreach a ssociallyocially optimaloptimal levellevel ofof contributionscontributions (for(for example,example, Meier,Meier, 2007b).2007b). CanCan incentivesincentives ffosteroster people’speople’s willingnesswillingness toto makemake suchsuch contributions?contributions? GoingGoing backback toto thethe workwork ooff TitmussTitmuss ((1970)1970) oonn tthehe iissuessue ooff wwhetherhether eexplicitxplicit iincentivesncentives shouldshould bebe usedused toto eencouragencourage bloodblood donations,donations, somesome eeconomistsconomists aarguergue tthathat ((monetary)monetary) iincentivesncentives ddoo nnotot necessarilynecessarily increaseincrease contributionscontributions toto publicpublic goodsgoods but,but, inin fact,fact, maymay crowdcrowd outout ssuchuch ddonations.onations. TThehe GGneezyneezy andand RustichiniRustichini (2000a)(2000a) studystudy discusseddiscussed aboveabove showsshows thatthat offeringoffering a ssmallmall mmonetaryonetary iincentivencentive toto childrenchildren whowho voluntarilyvoluntarily collectcollect moneymoney forfor a charitycharity aactuallyctually llowersowers ttheirheir eefforts.fforts. BButut ooftenften iincentivesncentives ddoo nnotot bbackfiackfi rere (even(even ifif theythey dodo notnot iincreasencrease compliancecompliance byby much),much), asas inin thethe casecase ofof pricingpricing garbagegarbage collectioncollection byby thethe bbagag asas a wayway toto encourageencourage recyclingrecycling andand reducedreduced wastewaste (Kinnaman,(Kinnaman, 2006).2006). Hence,Hence, wwee bbelieveelieve thatthat thethe discussiondiscussion shouldshould notnot bebe whether iincentivesncentives negativelynegatively affectaffect ccontributionsontributions ttoo ppublicublic goods,goods, bbutut when iincentivesncentives dodo andand dodo notnot work.work.

IIncentivesncentives CCanan BBreakreak SSocialocial NNormsorms ooff TTrustrust PProsocialrosocial behaviorbehavior oftenoften involvesinvolves trust.trust. InIn principal–agentprincipal–agent relationships,relationships, aagentsgents putput inin higherhigher thanthan thethe enforceableenforceable levelslevels ofof efforteffort ifif principalsprincipals areare trustingtrusting ((EllingsenEllingsen andand Johannesson,Johannesson, 2007).2007). TrustTrust relationshipsrelationships areare delicate,delicate, however,however, andand eexplicitxplicit iincentivesncentives ccanan ssignalignal ddistrust.istrust. 200 Journal of Economic Perspectives

A numbernumber ofof laboratorylaboratory experimentsexperiments showshow thethe effecteffect ofof incentivesincentives onon trusttrust rrelationships.elationships. FehrFehr andand ListList (2004)(2004) carrycarry outout a variantvariant ofof thethe “trust“trust game”game” withwith bothboth cchiefhief eexecutivexecutive offioffi cerscers andand studentsstudents inin CostaCosta Rica.Rica. InIn thethe originaloriginal gamegame (Berg,(Berg, DDickhaut,ickhaut, andand McCabe,McCabe, 1995),1995), playerplayer 1 cchooseshooses howhow muchmuch ooutut ooff aann eendowmentndowment toto ssendend toto playerplayer 2.2. ThisThis amountamount isis multipliedmultiplied byby thethe experimenterexperimenter byby a factorfactor largerlarger tthanhan 11,, aandnd ggiveniven toto playerplayer 2 whowho isis thenthen askedasked toto decidedecide howhow muchmuch toto givegive backback ttoo playerplayer 1.1. IfIf playersplayers areare selfiselfi sh,sh, playerplayer 1 wouldwould expectexpect nono backback transfer,transfer, andand thusthus wwouldould transfertransfer nothingnothing inin thethe fi rstrst step.step. ButBut a trustingtrusting playerplayer willwill sendsend somesome moneymoney ttoo tthehe ootherther player,player, trustingtrusting thatthat thethe originaloriginal transfertransfer willwill bebe rewarded.rewarded. InIn thethe FehrFehr aandnd ListList (2004)(2004) modifimodifi cation,cation, playerplayer 1 cancan imposeimpose a fi nene onon playerplayer 2 ifif thatthat playerplayer ddoesoes notnot returnreturn a highhigh enoughenough amount.amount. InIn thethe experiment,experiment, thisthis fi nene crowdscrowds outout tthehe voluntaryvoluntary contributions.contributions. ItIt appearsappears thatthat individualsindividuals cancan perceiveperceive incentivesincentives asas eeitherither hostilehostile oror kind;kind; whenwhen perceivedperceived negatively,negatively, incentivesincentives cancan potentiallypotentially havehave ddetrimentaletrimental eeffectsffects oonn bbehavior.ehavior. IInn a differentdifferent kindkind ofof gift-exchangegift-exchange experiment,experiment, FehrFehr andand GächterGächter (2002)(2002) ddesignedesigned a mmultistageultistage ggameame iinn wwhichhich 11)) bbuyersuyers makemake a ccontractontract ooffer,ffer, wwhichhich consistsconsists ooff a fi xedxed priceprice andand a desireddesired quality;quality; 2)2) sellerssellers decidedecide whetherwhether toto acceptaccept thethe offer;offer; aandnd thenthen 3)3) sellerssellers choosechoose a qualityquality levellevel andand deliver.deliver. InIn thisthis thirdthird stage,stage, sellerssellers ssometimesometimes ccanan cchoosehoose tthehe qqualityuality wwithoutithout constraintconstraint andand thusthus havehave thethe abilityability ttoo underperformunderperform ttheirheir ccontract.ontract. IInn ootherther cases,cases, buyersbuyers havehave somesome probabilityprobability ofof ddetectingetecting andand fi ningning sellerssellers whowho underperformunderperform onon quality.quality. AddingAdding thisthis possibilitypossibility ooff detectiondetection andand fi ningning causescauses fewerfewer cooperativecooperative offersoffers toto bebe acceptedaccepted andand ccompleted.ompleted. Gächter,Gächter, Kessler,Kessler, andand KoenigsteinKoenigstein (2010)(2010) extendextend thethe frameworkframework toto showshow tthathat eveneven ifif a short-runshort-run crowding-outcrowding-out effecteffect doesdoes notnot occur,occur, voluntaryvoluntary cooperationcooperation iinn tthehe llongong rrunun iiss llowerower tthanhan inin a purepure trusttrust relationship.relationship. AAlthoughlthough peoplepeople maymay notnot viewview certaincertain incentivesincentives asas a signsign ofof distrust,distrust, theythey ooftenften seesee explicitexplicit controlcontrol oror monitoringmonitoring inin thisthis way.way. FalkFalk andand KosfeldKosfeld (2006)(2006) useuse a ggameame iinn whichwhich a playerplayer decidesdecides howhow muchmuch moneymoney fromfrom anan endowmentendowment toto passpass toto aanothernother player.player. BecauseBecause passingpassing partpart ofof thethe endowmentendowment isis costly,costly, nono self-interestedself-interested ppartyarty sshouldhould ppassass aanything.nything. TTheyhey fi ndnd thatthat ifif thethe receivingreceiving playerplayer enforcesenforces a minimalminimal llevelevel ofof transfer,transfer, whichwhich cancan bebe veryvery low,low, thethe initialinitial player’splayer’s willingnesswillingness toto cooperatecooperate ddecreases.ecreases. Again,Again, manymany agentsagents experienceexperience controlcontrol asas a signalsignal ofof distrustdistrust andand reactreact nnegativelyegatively ttoo iit.t. TThus,hus, tthehe eeffectivenessffectiveness ooff uusingsing iincentivesncentives ttoo eencouragencourage ccontributionsontributions ttoo ppublicublic ggoods,oods, likelike volunteering,volunteering, dependsdepends onon whetherwhether thosethose incentivesincentives affectaffect thethe trusttrust rela-rela- ttionshipionship bbetweenetween tthehe ppartiesarties iinvolved.nvolved.

IIncentivesncentives FFramerame SSocialocial IInteractionsnteractions aandnd AAffectffect SSocialocial NNormsorms TThehe framingframing ofof tthehe ddecisionecision situationsituation criticallycritically inflinfl uencesuences prosocialprosocial behavior.behavior. FForor example,example, whetherwhether a prisoner’sprisoner’s dilemmadilemma gamegame isis labeledlabeled asas a “Wall“Wall StreetStreet Game”Game” oorr a “Community“Community Game”Game” cancan changechange behaviorbehavior substantiallysubstantially (Liberman,(Liberman, Samuels,Samuels, aandnd Ross,Ross, 2004).2004). MovingMoving fromfrom nono incentiveincentive toto a positivepositive incentiveincentive cancan dramaticallydramatically cchangehange thethe fframingraming ooff tthehe iinteractionnteraction aandnd sshifthift aann iindividual’sndividual’s ddecisionecision fframerame ffromrom ssocialocial toto monetary.monetary. InIn theirtheir daycaredaycare study,study, GneezyGneezy andand RustichiniRustichini (2000b)(2000b) argueargue Uri Gneezy, Stephan Meier, and Pedro Rey-Biel 201

tthathat a possiblepossible explanationexplanation ofof thethe behaviorbehavior changechange inin thethe longlong runrun isis a changechange inin tthehe ssocialocial nnorm.orm. HHeymaneyman aandnd AArielyriely ((2004)2004) llookook aatt wwhetherhether iindividualsndividuals fframerame a ssituationituation aass ssocialocial oorr aass mmonetary.onetary. IInn qquestionnaireuestionnaire eevidencevidence aaboutbout wwhetherhether sstudentstudents wwouldould helphelp withwith a move,move, theythey fi ndnd thatthat monetarymonetary incentivesincentives oftenoften diminishdiminish thethe pperceptionerception ofof tthehe iinteractionnteraction aass ssocialocial aandnd tthushus rreduceeduce tthehe aamountmount ooff hhelpelp rreceived.eceived. IInn anan experimentexperiment thatthat involvedinvolved studentsstudents draggingdragging a computerizedcomputerized ballball toto differentdifferent ppartsarts ofof a screen,screen, theythey fi ndnd thatthat thosethose paidpaid inin candycandy dodo betterbetter thanthan thosethose paidpaid inin ccash,ash, presumablypresumably becausebecause candycandy isis a socialsocial rewardreward ratherrather thanthan a monetarymonetary one.one. TheThe ddifferencesifferences betweenbetween a socialsocial andand a monetarymonetary rewardreward maymay alsoalso changechange individuals’individuals’ bbeliefseliefs aaboutbout tthehe bbehaviorehavior ooff oothers:thers: fforor eexample,xample, ppeopleeople mmayay bbelieveelieve iincentivesncentives aarere iinn pplacelace bbecauseecause tthehe ssocialocial nnormorm iiss tthathat ppeopleeople ddoo nnotot ccontribute.ontribute. BBohnet,ohnet, FFrey,rey, aandnd HHuckuck ((2001)2001) iinvestigatenvestigate eexperimentallyxperimentally wwhetherhether aagentsgents aarere lessless likelylikely toto breachbreach a contractcontract whenwhen enforcementenforcement probabilityprobability isis lowlow (0.1),(0.1), mmediumedium (0.5),(0.5), oror highhigh (0.9).(0.9). ConsistentConsistent withwith thethe argumentargument thatthat incentivesincentives changechange tthehe framingframing ofof thethe situation,situation, a mediummedium enforcementenforcement probability,probability, relativerelative toto a lowlow pprobability,robability, iincreasesncreases contractcontract breachesbreaches afterafter thethe increasedincreased enforcementenforcement prob-prob- aabilitiesbilities areare removed.removed. AsAs shownshown inin otherother contexts,contexts, thethe highhigh incentiveincentive doesdoes notnot pproduceroduce thethe samesame detrimentaldetrimental effect.effect. InIn anan experimentexperiment describeddescribed inin FusterFuster andand MMeiereier ((2010),2010), aaddingdding iincentivesncentives sseemseems ttoo cchangehange nnorms:orms: iinn a ggameame iinvolvingnvolving ccontributionsontributions toto a publicpublic good,good, introducingintroducing privateprivate incentivesincentives (in(in thisthis case,case, a ccentrallyentrally providedprovided smallsmall monetarymonetary prizeprize forfor everyevery contribution)contribution) changeschanges thethe socialsocial nnormorm ofof contributions,contributions, makingmaking free-ridingfree-riding moremore acceptable.acceptable. AsAs a result,result, normnorm eenforcementnforcement inin thethe formform ofof peerpeer punishmentpunishment ofof free-ridingfree-riding isis reduced,reduced, whichwhich cancan rreduceeduce overalloverall contributioncontribution rates.rates. DDependingepending onon theirtheir nature,nature, incentivesincentives cancan shiftshift a situationsituation fromfrom a socialsocial toto a mmonetaryonetary frame.frame. ConsiderConsider a thoughtthought experiment:experiment: YouYou meetmeet anan attractiveattractive person,person, aandnd inin duedue timetime youyou telltell thatthat person,person, “I“I likelike youyou veryvery muchmuch andand wouldwould likelike toto havehave ssexex wwithith yyou.”ou.” AAlternatively,lternatively, cconsideronsider tthehe ssameame ssituation,ituation, bbutut nnowow yyouou ssay,ay, ““II llikeike yyouou vveryery muchmuch andand wouldwould likelike toto havehave sexsex withwith you,you, and, toto sweetensweeten thethe deal,deal, I’mI’m alsoalso wwillingilling toto paypay youyou $20!”$20!” OnlyOnly a certaincertain kindkind ofof economisteconomist wouldwould expectexpect youryour partnerpartner ttoo bebe happierhappier inin thethe secondsecond scenario.scenario. However,However, offeringoffering $20$20 worthworth ofof (uncondi-(uncondi- ttional)ional) fl owersowers mightmight iindeedndeed mmakeake tthehe ddesiredesired ppartnerartner hhappier.appier.

IIncentivesncentives RReduceeduce IImagemage MMotivationotivation IImagemage concernsconcerns areare anotheranother importantimportant motivationmotivation forfor contributingcontributing toto publicpublic ggoods:oods: ppeopleeople vvolunteer,olunteer, rrecycle,ecycle, ddonateonate bblood,lood, oorr bbehaveehave pprosociallyrosocially ttoo sshowhow oothersthers thatthat theythey areare “nice.”“nice.” ExtrinsicExtrinsic rewardsrewards cancan crowdcrowd outout imageimage motivationmotivation byby ddilutingiluting tthehe ssignalignal ttoo ooneselfneself oorr oothersthers ooff a vvoluntaryoluntary ccontribution:ontribution: iitt bbecomesecomes uunclearnclear whetherwhether a personperson isis undertakingundertaking a socialsocial activityactivity toto “do“do good”good” oror toto “do“do wwell.”ell.” AAriely,riely, Bracha,Bracha, andand MeierMeier (2009)(2009) useuse anan experimentexperiment inin whichwhich individualsindividuals ccanan makemake donationsdonations toto charitablecharitable organizationsorganizations butbut thosethose donationsdonations cancan bebe mademade eeitherither publiclypublicly oror privately,privately, andand incentivizedincentivized oror not.not. TheyThey fi ndnd thatthat ifif individualsindividuals ddecideecide toto behavebehave prosociallyprosocially inin private,private, incentivesincentives workwork well.well. However,However, inin casescases inin 202 Journal of Economic Perspectives

wwhichhich thethe desiredesire toto behavebehave prosociallyprosocially isis duedue toto imageimage motivation,motivation, beingbeing paidpaid inin ppublicublic crowdscrowds outout prosocialprosocial behavior.behavior. TheseThese fi ndingsndings indicateindicate thatthat monetarymonetary incen-incen- ttivesives forfor prosocialprosocial behaviorbehavior workwork betterbetter whenwhen contributionscontributions toto thethe publicpublic goodsgoods areare nnotot asas visiblevisible (perhaps(perhaps likelike investmentsinvestments inin anan energy-savingenergy-saving oror pollution-reducingpollution-reducing wwaterater boiler)boiler) thanthan whenwhen theythey areare visiblevisible andand presumablypresumably donedone partlypartly duedue toto imageimage cconcernsoncerns (like(like buyingbuying a hybridhybrid car).car). ItIt alsoalso impliesimplies thatthat incentivesincentives forfor voluntaryvoluntary ccontributionsontributions shouldshould bebe providedprovided privatelyprivately ratherrather thanthan publicly,publicly, toto reducereduce thethe eeffectffect onon imageimage motivation.motivation. IIncentivesncentives forfor bloodblood donations,donations, asas mentionedmentioned above,above, provideprovide anotheranother illustra-illustra- ttionion ooff tthehe iimportancemportance ooff ccontext.ontext. AAlthoughlthough rrecentecent eevidencevidence isis mmixed,ixed, iitt sseemseems ttoo sshowhow thatthat noncashnoncash materialmaterial incentivesincentives dodo notnot havehave detrimentaldetrimental effectseffects onon bloodblood ssupply.upply. GoetteGoette andand StutzerStutzer (2010)(2010) andand Lacetera,Lacetera, Macis,Macis, andand SlonimSlonim (forthcoming)(forthcoming) sshowhow iinn llarge-scalearge-scale fi eldeld experimentsexperiments inin collaborationcollaboration withwith thethe RedRed CrossCross thatthat lotterylottery ttickets,ickets, giftgift cards,cards, oror noncashnoncash incentivesincentives suchsuch asas T-shirtsT-shirts havehave neutralneutral oror positivepositive eeffectsffects onon thethe numbernumber ofof donors,donors, particularlyparticularly onon infrequentinfrequent donors.donors. ThisThis fi ndingnding iindicatesndicates thatthat iincentivesncentives ccanan bbee ccloselose ssubstitutesubstitutes fforor mmoneyoney aandnd nnotot nnegativelyegatively aaffectffect ddonationsonations iinn tthehe sshorthort rrun.un. DDueue toto moralmoral objectionsobjections toto performingperforming bloodblood donationdonation experimentsexperiments involvinginvolving ccash,ash, fewfew fi eldeld studiesstudies havehave testedtested monetarymonetary incentivesincentives inin thisthis area,area, withwith thethe excep-excep- ttionion ooff MMellströmellström aandnd JJohannessonohannesson ((2008).2008). IInn oonene cconditionondition uusingsing ssubjectsubjects iinn SSweden,weden, theythey offeredoffered $7$7 forfor donatingdonating blood;blood; inin anotheranother condition,condition, theythey offeredoffered $7$7 wwithith thethe optionoption toto donatedonate thethe moneymoney toto charity.charity. Interestingly,Interestingly, theythey fi ndnd evidenceevidence ooff a ddetrimentaletrimental effecteffect onon bloodblood donationsdonations ofof thethe paymentpayment withoutwithout thethe charitycharity ooption.ption. However,However, tthehe ddroprop iinn bbloodlood supplysupply isis onlyonly statisticallystatistically signifisignifi cantcant forfor women,women, ddecreasingecreasing fromfrom 5252 toto 3030 percentpercent whenwhen onlyonly cashcash incentivesincentives areare offered.offered. Consis-Consis- ttentent withwith thethe fi ndingnding thatthat incentivesincentives interactinteract withwith individuals’individuals’ imageimage motivation,motivation, bbloodlood supplysupply goesgoes backback toto “normal”“normal” inin theirtheir studystudy whenwhen thethe monetarymonetary incentiveincentive isis ccombinedombined wwithith aann ooptionption ttoo ddonateonate ttoo ccharity.harity.

IIncentivesncentives aandnd LifestyleLifestyle HabitsHabits

WWee focusfocus onon twotwo currentcurrent prominentprominent healthhealth issuesissues inin thisthis section:section: exercisingexercising andand ssmoking.moking. WeWe chosechose thesethese twotwo examplesexamples becausebecause theythey involveinvolve enormousenormous costs,costs, andand bbecauseecause ttheyhey rrepresentepresent tthehe ttwowo ““faces”faces” ooff hhabitabit fformation:ormation: ggoodood aandnd bbadad hhabits.abits. TThehe classicclassic modelmodel ofof habithabit formationformation inin economicseconomics defidefi nesnes habitualhabitual behaviorbehavior asas ddisplayingisplaying a positivepositive relationrelation betweenbetween pastpast andand currentcurrent consumptionconsumption (Becker(Becker andand MMurphy,urphy, 11988).988). AAccordingccording ttoo tthishis aapproach,pproach, hhabitsabits mmayay bbee hharmfularmful oorr bbenefienefi cialcial ttoo thethe extentextent thatthat theythey decreasedecrease oror increaseincrease futurefuture utility.utility. InIn thethe model,model, marginalmarginal uutilitytility todaytoday isis correlatedcorrelated withwith historicalhistorical consumption;consumption; changeschanges todaytoday maymay havehave oonlynly a smallsmall effecteffect inin thethe shortshort runrun butbut increasinglyincreasingly largelarge effectseffects inin thethe longlong run.run. IIff exercisingexercising isis habitualhabitual behavior,behavior, providingproviding incentivesincentives toto gogo toto thethe gymgym forfor a whilewhile mmayay increaseincrease futurefuture utilityutility fromfrom exercising.exercising. Similarly,Similarly, givinggiving peoplepeople highhigh enoughenough iincentivesncentives toto notnot smokesmoke inin thethe shortshort runrun couldcould inflinfl uuenceence long-runlong-run consumptionconsumption When and Why Incentives (Don’t) Work to Modify Behavior 203

bbyy changingchanging thethe habit.habit.1 SimilarSimilar predictionspredictions comecome fromfrom thethe behavioristbehaviorist viewview inin ppsychologysychology knownknown asas “operant“operant conditioning”conditioning” (Skinner,(Skinner, 1972),1972), whichwhich arguesargues thatthat rrewardsewards andand punishmentpunishment cancan inflinfl uenceuence voluntaryvoluntary behavioralbehavioral adaptationsadaptations and,and, inin pparticular,articular, thatthat extrinsicextrinsic incentivesincentives cancan changechange habitualhabitual behavior.behavior. TheThe alternativealternative hhypothesis,ypothesis, basedbased onon thethe crowding-outcrowding-out literature,literature, suggestssuggests thatthat payingpaying peoplepeople forfor anan aactivityctivity maymay helphelp inin thethe shortshort runrun butbut reducereduce theirtheir intrinsicintrinsic motivationmotivation toto performperform tthehe tasktask inin thethe longlong run,run, onceonce thethe incentivesincentives areare removed.removed.

CCigaretteigarette SSmoking:moking: A BBadad HHabitabit SSmokingmoking andand smoking-relatedsmoking-related illnessesillnesses accountaccount forfor billionsbillions inin directdirect health-health- ccareare ccosts,osts, wwithith aann aadditionaldditional eeconomicconomic ccostost iinn llostost pproductivityroductivity oorr wwages—alongages—along wwithith tthehe pphysicalhysical ccostsosts ooff iillnessllness aandnd rreducededuced llifeife eexpectancy.xpectancy. RResearchersesearchers hhaveave ttriedried ddifferentifferent mmethodsethods ttoo mmotivateotivate qquitting:uitting: iindividualndividual aandnd ggrouproup ccounseling,ounseling, ppharmacologicalharmacological iinterventions,nterventions, iinpatientnpatient aandnd ooutpatientutpatient ttreatments,reatments, ssupportupport ggroups,roups, wworkplaceorkplace iinterventions,nterventions, aandnd ffamilyamily ttherapies.herapies. MManyany ooff tthesehese eeffortsfforts uusese ppunishmentunishment oorr rrewardsewards ((Donatelle,Donatelle, HHudson,udson, DDobie,obie, GGoodall,oodall, HHunsberger,unsberger, aandnd OOswald,swald, 2004).2004). SSomeome ooff tthehe iincentivesncentives regardingregarding smokingsmoking cessationcessation wouldwould alreadyalready seemseem toto bebe iinn place.place. MostMost peoplepeople areare awareaware that,that, inin thethe wordswords ofof thethe warningwarning onon packspacks ofof ciga-ciga- rrettes,ettes, “smoking“smoking cancan bebe hazardoushazardous toto youryour health.”health.” Indeed,Indeed, 7070 percentpercent ofof smokerssmokers rreporteport wantingwanting toto quitquit smoking,smoking, butbut onlyonly 2.52.5 percentpercent toto 3 ppercentercent succeedsucceed eacheach yearyear ((VolppVolpp etet al.,al., 2006).2006). IncentivesIncentives areare alreadyalready inin placeplace forfor manymany ofof thethe behaviorsbehaviors wewe trytry ttoo change,change, butbut cigarettescigarettes offeroffer anan eveneven strongerstronger case.case. WhileWhile manymany times,times, thethe incen-incen- ttivesives aarere iinn tthehe ffutureuture ((weightweight lloss,oss, eexercising,xercising, tthehe mmedicaledical aaspectsspects ooff nnotot ssmoking),moking), ssomeome peoplepeople spendspend a largelarge portionportion ofof theirtheir immediateimmediate incomeincome onon cigarettes.cigarettes. InIn ssomeome placesplaces inin thethe UnitedUnited StatesStates thethe costcost ofof a packpack ofof cigarettescigarettes isis overover $10—which$10—which iiss hhigherigher tthanhan tthehe mminimuminimum hhourlyourly wwage.age. IIff yyouou wworkork fforor mminimuminimum wwageage aandnd ssmokemoke a ppackack a day,day, youyou areare consumingconsuming overover 1010 percentpercent ofof youryour incomeincome now. IItt iiss hhardard toto ttopop ssuchuch sstrongtrong iincentivesncentives withwith standardstandard approaches.approaches. ThisThis isis whywhy wewe believebelieve thatthat bbehavioralehavioral approachesapproaches thatthat offeroffer somesome kindkind ofof changechange inin thethe mentalmental accountsaccounts areare tthehe rrightight wwayay ttoo ggoo ((Thaler,Thaler, 11999;999; TThalerhaler aandnd SSunstein,unstein, 2008).2008). TThehe ttwowo mmainain ddiffiiffi cultiesculties forfor peoplepeople toto stopstop smokingsmoking maymay bebe impulsiveness,impulsiveness, mmeaningeaning thethe inabilityinability toto delaydelay gratifigratifi cationcation andand thethe inabilityinability toto withholdwithhold a responseresponse ((Loewenstein,Loewenstein, 1987;1987; Laibson,Laibson, 1997),1997), andand drug-induceddrug-induced euphoria,euphoria, thatthat is,is, subjec-subjec- ttiveive oror moodmood statesstates thatthat correspondcorrespond toto feelingsfeelings ofof well-beingwell-being thatthat areare commonlycommonly aassociatedssociated withwith behavioralbehavioral preferencespreferences forfor drugsdrugs (de(de WitWit andand Phan,Phan, 2009).2009). ToTo helphelp tthosehose wwhoho wwishish ttoo qquituit oovercomevercome thesethese obstacles,obstacles, itit isis possiblepossible toto useuse eithereither a directdirect ppaymentayment forfor a successfulsuccessful reductionreduction inin smoking,smoking, oror a paymentpayment forfor participationparticipation inin a ccessationessation pprogram.rogram.

1 A different view is presented in Bernheim and Rangel (2004). In their model, drug use among addicts may be a mistake triggered by environmental cues, which addicts may then try to avoid. According to this model, smoking and other substance addictions are qualitatively different from other “negative habits.” 204 Journal of Economic Perspectives

TTherehere isis a considerableconsiderable publicpublic healthhealth literatureliterature onon incentivesincentives forfor smokingsmoking ccessation.essation. ManyMany ofof thesethese programsprograms involveinvolve a relativelyrelatively smallsmall numbernumber ofof regularregular ssmokers—perhapsmokers—perhaps a fewfew dozen—whodozen—who self-selectself-select intointo a programprogram inin anan academic,academic, hhealthcare,ealthcare, oror wworkplaceorkplace setting.setting. EspeciallyEspecially inin thethe eearlierarlier sstudies,tudies, tthehe ssmokersmokers ooftenften sself-reportedelf-reported theirtheir levellevel ofof smoking,smoking, ratherrather thanthan usingusing objectiveobjective biologicalbiological markersmarkers ((likelike thethe levellevel ofof carboncarbon monoxidemonoxide inin thethe bloodstream).bloodstream). InIn a surveysurvey ofof thisthis litera-litera- tture,ure, Donatelle,Donatelle, Hudson,Hudson, Dobie,Dobie, Goodall,Goodall, Hunsberger,Hunsberger, andand OswaldOswald (2004,(2004, p.p. S167)S167) cconcludeonclude thatthat thethe smoking-cessationsmoking-cessation literatureliterature hashas notnot fullyfully exploredexplored thethe effecteffect ofof iincentivesncentives inin termsterms ofof magnitude,magnitude, frequency,frequency, andand thethe effecteffect ofof bonusesbonuses andand resets,resets, aandnd thatthat moremore researchresearch mustmust bebe done.done. InIn particular,particular, “these“these studiesstudies suggestsuggest thatthat eextrinsicxtrinsic mmotivationotivation ccanan eenhancenhance sshort-termhort-term ccessationessation aandnd rreduction,eduction, pparticularlyarticularly iiff tthehe mmagnitudeagnitude aandnd ffrequencyrequency ooff rrewardsewards aarere ssuffiuffi cient.cient. TheThe durabilitydurability oror long-termlong-term mmaintenanceaintenance ooff tthesehese eeffectsffects iiss uunknown.”nknown.” OOurur sensesense ofof thisthis literatureliterature isis thatthat studiesstudies thatthat dodo measuremeasure long-termlong-term effectseffects ooftenften fi nndd ddisappointingisappointing rresults.esults. FForor aann eexamplexample ooff a llonger-termonger-term sstudytudy ddoneone aafterfter tthehe DDonatelleonatelle eett aal.l. ((2004)2004) rrevieweview ooff tthehe lliterature,iterature, pparticipantsarticipants iinn VVolppolpp eett al.al. (2006)(2006) werewere smokerssmokers atat thethe PhiladelphiaPhiladelphia VeteransVeterans AffairsAffairs MedicalMedical CenterCenter wwhoho werewere randomizedrandomized intointo incentiveincentive andand non-incentivenon-incentive treatments.treatments. TheThe studystudy ccombinedombined incentivesincentives toto participateparticipate inin a fi ve-classve-class smoking-cessationsmoking-cessation programprogram withwith iincentivesncentives fforor ssmokingmoking ccessation.essation. TThehe iincentivencentive ggrouproup wwasas oofferedffered $$2020 fforor eeachach cclasslass attendedattended andand $100$100 ifif theythey quitquit smokingsmoking forfor 3030 daysdays post-programpost-program completion.completion. AAss expected,expected, thethe incentivizedincentivized participantsparticipants werewere moremore likelylikely toto completecomplete thethe classesclasses ((2626 versusversus 1212 percent)percent) andand toto quitquit inin thethe shortshort runrun (16(16 versusversus 5 percent).percent). However,However, aafterfter ssixix mmonths,onths, qquituit rratesates bbetweenetween tthehe ttreatmentsreatments wwereere nnotot ssignifiignifi cantlycantly differentdifferent ((66 versusversus 5 percent).percent). OOff ccourse,ourse, ssometimesometimes sshort-runhort-run ssuccessuccess ccanan bbee iimportantmportant iinn iitself.tself. FForor eexample,xample, iitt mmayay bbee uusefulseful ttoo ppayay ppregnantregnant wwomenomen nnotot ttoo ssmoke,moke, eevenven iiff aafterfter ppregnancyregnancy mmostost ooff tthemhem rrelapseelapse ((Donatelle,Donatelle, PProws,rows, CChampeau,hampeau, aandnd HHudson,udson, 22000).000). IInn ootherther ccases,ases, eextendingxtending thethe incentivesincentives couldcould extendextend thethe short-runshort-run benefibenefi tsts overover sixsix monthsmonths oror a year.year. ForFor example,example, inin thethe VolppVolpp etet al.al. (2009)(2009) study,study, participantsparticipants receivedreceived incen-incen- ttivesives (($100)$100) toto participateparticipate inin a smoking-cessationsmoking-cessation program.program. TheThe incentivizedincentivized groupgroup aalsolso receivedreceived $250$250 forfor cessationcessation ofof smokingsmoking withinwithin sixsix monthsmonths ofof studystudy enrollment,enrollment, aandnd $$400400 fforor aabstinencebstinence forfor anan additionaladditional sixsix monthsmonths afterafter thethe initialinitial cessationcessation (as(as cconfionfi rmedrmed byby biochemicalbiochemical tests).tests). IncentivizedIncentivized participantsparticipants werewere signifisignifi cantlycantly moremore llikelyikely toto havehave stoppedstopped smokingsmoking forfor 9 oror 1212 monthsmonths afterafter enrollmentenrollment (15(15 versusversus 5 percent)percent) andand 1515 oror 1818 monthsmonths afterafter enrollmentenrollment (9(9 versusversus 4 percent).percent). Thus,Thus, ““stretchingstretching thethe shortshort run”run” couldcould helphelp inin keepingkeeping peoplepeople awayaway fromfrom thethe badbad habit;habit; yyetet tthehe llong-termong-term ssuccessuccess rrateate iinn tthishis sstudytudy wwasas oonlynly 9 ppercent.ercent. IInn rrecentecent yyears,ears, eeconomistsconomists hhaveave bbeeneen ttestingesting bbehavioralehavioral ccommitmentommitment ddevicesevices ((Ashraf,Ashraf, Karlan,Karlan, andand Yin,Yin, 2006).2006). Gine,Gine, Karlan,Karlan, andand ZinmanZinman (2010)(2010) createdcreated a vvoluntaryoluntary commitmentcommitment productproduct toto helphelp smokerssmokers quitquit smokingsmoking (for(for a theoreticaltheoretical ddiscussion,iscussion, seesee GruberGruber andand Koszegi,Koszegi, 2001).2001). TheyThey offeredoffered smokerssmokers savingssavings accountsaccounts iintonto whichwhich thethe smokerssmokers depositeddeposited fundsfunds forfor sixsix months:months: ifif thethe participantsparticipants quitquit ssmokingmoking bbyy tthehe endend ofof thisthis period,period, theirtheir moneymoney waswas returned;returned; otherwise,otherwise, theirtheir Uri Gneezy, Stephan Meier, and Pedro Rey-Biel 205

mmoneyoney wwentent toto charity.charity. TheThe authorsauthors foundfound thatthat 1111 percentpercent ofof smokerssmokers werewere willingwilling ttoo uusese tthishis ccommitmentommitment ddevice;evice; ooff tthathat ggroup,roup, thosethose whowho werewere randomlyrandomly assignedassigned ttoo thisthis treatmenttreatment werewere 3 percentpercent moremore likelylikely toto passpass thethe six-monthsix-month testtest thanthan thethe ccontrolontrol group,group, andand thisthis differencedifference carriedcarried onon sixsix monthsmonths later.later. ButBut althoughalthough thesethese ccommitmentommitment ddevicesevices sshowhow ssomeome ssuccessuccess fforor tthosehose wwhoho cchoosehoose tthem,hem, tthehe mmajorityajority ooff ppeopleeople inin thesethese studiesstudies andand inin lifelife dodo notnot choosechoose toto useuse suchsuch commitmentcommitment devices,devices, aandnd ffromrom tthosehose pparticipantsarticipants wwhoho ddidid cchoosehoose ttoo uusese tthem,hem, tthehe mmajorityajority ffailedailed ttoo qquituit ssmoking.moking. MManyany oopenpen qquestionsuestions iinn tthishis aarearea aawaitwait ffutureuture rresearch.esearch.

EExercisingxercising aandnd DDiet:iet: GGoodood HabitsHabits TThehe bbenefienefi ttss ooff pphysicalhysical eexercisexercise aandnd a ggoodood ddietiet aarere aassociatedssociated wwithith bbetteretter hhealthealth iinn mmanyany rrespects,espects, ssuchuch aass rreducingeducing oobesitybesity aandnd hheart-relatedeart-related ssicknesses.icknesses. MManyany ppeopleeople wwantant ttoo eexercisexercise mmore,ore, bbutut ffailail ttoo ddoo sso.o. CCanan wwee cconstructonstruct iincentivesncentives sschemeschemes tthathat wwillill cconvinceonvince ppeopleeople ttoo eexercisexercise mmore?ore? DDellaVignaellaVigna aandnd MMalmendieralmendier ((2006)2006) offeroffer a vividvivid exampleexample ofof people’speople’s inconsistencyinconsistency inin theirtheir choiceschoices aboutabout exer-exer- ccise.ise. TheyThey showshow thatthat manymany peoplepeople choosechoose toto paypay a fl atat monthlymonthly feefee forfor membershipmembership iinn a gymgym andand thenthen endend upup payingpaying moremore thanthan ifif theythey hadhad chosenchosen toto paypay a fi xxeded costcost pperer visit.visit. OneOne interpretationinterpretation ofof thisthis resultresult isis thatthat peoplepeople choosechoose toto paypay moremore inin aadvancedvance asas a self-controlself-control mechanismmechanism becausebecause doingdoing soso reducesreduces thethe marginalmarginal costcost ooff attendingattending toto zero,zero, andand peoplepeople believebelieve thatthat thisthis reductionreduction inin marginalmarginal costcost willwill eencouragencourage themthem toto attendattend thethe gymgym inin thethe future.future. TToo testtest thethe effecteffect ofof incentivesincentives onon exerciseexercise habits,habits, CharnessCharness andand GneezyGneezy ((2009)2009) conductedconducted twotwo fi eeldld eexperimentsxperiments iinn wwhichhich uuniversityniversity studentsstudents werewere offeredoffered iincentivesncentives toto attendattend thethe university’suniversity’s gym.gym. InIn thethe fi rstrst study,study, oneone groupgroup receivedreceived nono iincentives,ncentives, whereaswhereas twotwo otherother groupsgroups werewere promisedpromised $25$25 toto attendattend thethe gymgym atat leastleast ooncence dduringuring tthehe nnextext wweekeek ((andand aallll sstudentstudents rreceivedeceived literatureliterature onon thethe benefibenefi tsts ofof eexercise).xercise). UponUpon theirtheir returnreturn toto thethe laboratory,laboratory, studentsstudents inin oneone ofof thethe latterlatter twotwo ggroupsroups werewere promisedpromised anan additionaladditional $100$100 (paid(paid uponupon completion)completion) toto attendattend thethe ggymym eeightight mmoreore ttimesimes dduringuring tthehe nnextext ffourour wweeks.eeks. TThehe aauthorsuthors wwereere aableble ttoo oobservebserve aattendancettendance before,before, during,during, andand afterafter thethe intervention.intervention. A secondsecond studystudy addedadded somesome vvariationsariations ofof thesethese treatmentstreatments andand iincludedncluded mmeasurementeasurement ooff bbiometriciometric pparametersarameters ssuchuch asas weightweight andand blood-pressure.blood-pressure. TheThe mainmain resultresult ofof thesethese experimentsexperiments isis thatthat rrequiringequiring ppeopleeople ttoo vvisitisit tthehe ggymym aatt lleasteast eeightight ttimes,imes, iinn oorderrder ttoo bbee ppaid,aid, ssignifiignifi cantlycantly iimprovedmproved aattendancettendance ratesrates duringduring and,and, moremore iimportantly,mportantly, after tthehe intervention.intervention. TThehe improvementimprovement inin ggymym aattendancettendance wwasas eentirelyntirely drivendriven byby thethe changechange forfor thosethose ppeopleeople wwhoho hhadad notnot ppreviouslyreviously beenbeen regularregular attendees.attendees. AAclandcland andand LevyLevy (2010)(2010) replicatedreplicated thethe resultsresults ofof thethe CharnessCharness andand GneezyGneezy ((2009)2009) gymgym eexperiments.xperiments. TheyThey alsoalso foundfound thatthat peoplepeople overestimatedoverestimated thethe chancechance tthathat theythey willwill exercise.exercise. However,However, observingobserving behaviorbehavior overover a longerlonger period,period, theythey ffoundound a substantialsubstantial decaydecay afterafter studentsstudents wentwent onon a winterwinter break.break. BabcockBabcock andand HHartmanartman ((2010)2010) ffocusocus oonn tthehe ssocialocial eeffectsffects ooff eexercisexercise iincentives.ncentives. TTheyhey rrandomlyandomly iincentivizedncentivized studentsstudents toto gogo toto thethe gym.gym. PriorPrior toto thethe experiment,experiment, theythey elicitedelicited a ddetailedetailed friendshipfriendship networknetwork fromfrom thethe participants,participants, allall ofof whomwhom livedlived inin tthehe ssameame rresidenceesidence hall.hall. TheyThey thenthen lookedlooked atat hhowow vvariationariation inin tthehe nnumbersumbers ofof ttreatedreated aandnd 206 Journal of Economic Perspectives

uuntreatedntreated peerspeers toto whichwhich thethe participantparticipant waswas exposedexposed inflinfl uenceduenced thethe effectivenesseffectiveness ooff tthehe iincentives.ncentives. RReplicatingeplicating thethe resultsresults ofof CCharnessharness andand GneezyGneezy (2009),(2009), theythey alsoalso ffoundound tthathat pparticipantsarticipants whowho hadhad beenbeen incentivizedincentivized toto exerciseexercise increasedincreased theirtheir gymgym uusagesage mmoreore iiff ttheyhey hhadad mmoreore ffriendsriends wwhoho hhadad bbeeneen iincentivized,ncentivized, aandnd llessess iiff ttheyhey hhadad mmoreore ffriendsriends inin thethe controlcontrol group.group. ThisThis fi ndingnding showsshows thethe importanceimportance ofof thethe socialsocial nnetworketwork inin enhancingenhancing thethe effecteffect ofof incentivesincentives forfor habithabit change—achange—a topictopic withwith anan iincreasingncreasing ccurrenturrent iinterest.nterest. IInn tthehe ccasease ooff eexercise,xercise, eestablishingstablishing a hhabitabit bbyy rrequiringequiring mmultipleultiple andand frequentfrequent vvisitsisits sseemseems nnecessary—especiallyecessary—especially fforor tthosehose wwhoho hhaveave llittleittle oorr nnoo ppreviousrevious habithabit ofof eexercising.xercising. A sself-commitmentelf-commitment ddevice,evice, oror eveneven justjust a ddecisionecision thatthat wouldwould impelimpel usus toto ggoo ttoo tthehe ggymym fforor a mmonthonth bbeforeefore eevaluatingvaluating tthehe ccostost aandnd bbenefienefi t ofof exercising,exercising, maymay rresultesult iinn a ddifferentifferent aassessmentssessment ooff tthehe nnetet vvaluealue ooff tthehe aactivity.ctivity.

CConclusiononclusion

WWhenhen eexplicitxplicit iincentivesncentives sseekeek ttoo cchangehange bbehaviorehavior iinn aareasreas llikeike eeducation,ducation, ccontri-ontri- bbutionsutions toto publicpublic goods,goods, andand formingforming habits,habits, a potentialpotential conflconfl ictict arisesarises betweenbetween tthehe directdirect extrinsicextrinsic effecteffect ofof thethe incentivesincentives andand howhow thesethese incentivesincentives cancan crowdcrowd ooutut iintrinsicntrinsic motivationsmotivations inin tthehe sshorthort rrunun aandnd tthehe llongong rrun.un. IInn eeducation,ducation, ssuchuch iincentivesncentives seemseem toto havehave moderatemoderate successsuccess whenwhen thethe incentivesincentives areare well-specifiwell-specifi eded aandnd well-targetedwell-targeted (“read(“read thesethese books”books” ratherrather thanthan “read“read books”),books”), althoughalthough thethe juryjury iiss sstilltill ooutut rregardingegarding thethe long-termlong-term successsuccess ofof thesethese incentiveincentive programs.programs. InIn encour-encour- aagingging contributionscontributions toto publicpublic goods,goods, oneone mustmust bebe veryvery carefulcareful whenwhen designingdesigning thethe iincentivesncentives toto preventprevent adverseadverse changeschanges inin socialsocial norms,norms, imageimage concerns,concerns, oror trust.trust. InIn tthehe eemergingmerging lliteratureiterature onon thethe useuse ofof iincentivesncentives forfor lifestylelifestyle changes,changes, largelarge enoughenough iincentivesncentives clearlyclearly workwork inin thethe shortshort runrun andand eveneven inin thethe middlemiddle run,run, butbut inin thethe llongeronger rrunun tthehe ddesiredesired cchangehange inin habitshabits cancan againagain disappear.disappear. IIncentivesncentives toto mmodifyodify bbehaviorehavior ccanan iinn ssomeome ccasesases bbee ccostost eeffective.ffective. TThehe mmedicaledical aandnd healthhealth economicseconomics literatureliterature intenselyintensely investigatesinvestigates whether,whether, andand when,when, preven-preven- ttionion isis ccheaperheaper tthanhan ttreatmentreatment ((forfor eexample,xample, RRussell,ussell, 11986).986). TThehe qquestionuestion iiss eeconomicconomic rratherather tthanhan mmoral:oral: ccertainertain preventionprevention activitiesactivities cancan costcost moremore thanthan theythey ssave,ave, asas sseemseems ttoo bbee tthehe ccasease wwithith mmammogramsammograms fforor yyoungoung wwomen.omen. MMedicaledical iinter-nter- vventionsentions cancan bebe veryvery costly.costly. InIn somesome cases,cases, relativelyrelatively cheapcheap andand potentiallypotentially moremore ccost-effectiveost-effective incentivesincentives mightmight bebe appliedapplied toto achieveachieve thethe samesame goal.goal. ForFor example,example, ccholesterol-reducingholesterol-reducing drugsdrugs cancan costcost hundredshundreds ofof ddollarsollars a mmonth;onth; ssimpleimple eexercisingxercising ccould,ould, inin somesome bborderlineorderline cases,cases, replacereplace thesethese drugs.drugs. UnlikeUnlike thethe sideside effectseffects ofof thethe ddrugs,rugs, tthehe ssideide eeffectsffects ooff eexercisingxercising aarere ppositive.ositive. OOurur mmessageessage iiss tthathat wwhenhen economistseconomists discussdiscuss incentives,incentives, theythey shouldshould broadenbroaden ttheirheir focus.focus. A considerableconsiderable andand growinggrowing bodybody ofof evidenceevidence suggestssuggests thatthat thethe effectseffects ooff iincentivesncentives dependdepend onon howhow theythey areare designed,designed, thethe formform inin whichwhich theythey areare givengiven ((especiallyespecially monetarymonetary oorr nnonmonetary),onmonetary), hhowow ttheyhey iinteractnteract withwith intrinsicintrinsic motivationsmotivations aandnd ssocialocial motivations,motivations, andand whatwhat happenshappens afterafter theythey areare withdrawn.withdrawn. IncentivesIncentives dodo mmatter,atter, bbutut iinn vvariousarious aandnd ssometimesometimes uunexpectednexpected wways.ays. When and Why Incentives (Don’t) Work to Modify Behavior 207

■ WWee tthankhank DavidDavid Autor,Autor, ChadChad Jones,Jones, JohnJohn List,List, TimothyTimothy Taylor,Taylor, andand RichardRichard ThalerThaler forfor eexcellentxcellent comments.comments. Pedro Rey-Biel acknowledges fi nancial support from Ministerio de Educación (ECO2009-07616), Barcelona GSE Research Network, and the Government of Catalonia.

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