Intrinsic and Extrinsic Motivation

The Review of Economic Studies, Ltd.
Intrinsic and Extrinsic Motivation

Author(s): Roland Bnabou and Jean Tirole
Source: The Review of Economic Studies, Vol. 70, No. 3 (Jul., 2003), pp. 489-520
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/3648598 .
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ReviewofEconomicStudies(2003) 70, 489-520

@ 2003 The ReviewofEconomicStudiesLimited
0034-6527/03/00190489$02.00
Intrinsic
andExtrinsic
Motivation
ROLAND BENABOU
and Institute
PrincetonUniversity
forAdvancedStudy
and
JEANTIROLE
IDEI (Universitjde ToulouseI), CERASandMIT

2003 (Eds.)
FirstversionreceivedFebruary2000; finalversionacceptedJanuary
Forpsychologists
A central
is thatindividuals
to incentives.
and
tenetof economics
respond
becausetheyundermine
incontrast,
areoften
rewards
andpunishments
counterproductive,
sociologists,
incentives
thesetwoviews,
howperformance
offered
"intrinsic
motivation".
Wereconcile
showing
byan
canadversely
anagent's
informed
teacher,
(worker,
child)perception
parent)
principal
(manager,
impact
intheshortrun,andnegative
arethenonlyweakreinforcers
ofthetask,orofhisownabilities.Incentives
theeffects
ofempowerment,
onmotivation,
as
inthelongrun.Wealsostudy
reinforcers
helpandexcuses
a battlefordominancewithina relationship.
ofego bashingreflecting
wellas situations
Tom said to himselfthatit was notsucha hollowworld,afterall. He had discovereda
tomakea manora
without
thatinorder
action,
knowing
it-namely,
greatlawofhuman
tomakethething
toattain.
Ifhehadbeena
itis onlynecessary
difficult
boycoveta thing,
ofthisbook,hewouldnowhavecomprehended
andwisephilosopher,
likethewriter
great
a bodyis obligedto do, andthatPlayconsistsofwhatever
thatWorkconsistsofwhatever
todo.
a bodyis notobliged
TheAdventures
MarkTwain,
(1876,Chapter
2).
ofTomSawyer
INTRODUCTION
Should a childbe rewardedforpassingan exam,or paid to read a book? Whatimpactdo

Does receiving
and monitoring
have on employees'moraleand productivity?
empowerment
Why do incentivesworkwell in some contexts,but appear
help boost or hurtself-esteem?
theself-confidence
in others?Whydo peoplesometimes
undermine
ofothers
counterproductive
andinitiative
on whoseeffort
theydepend?
theinterplay
Thesequestionswillbe studiedherefroma unifying
emphasizing
perspective,
and his social environment.
We shallthusmodel
betweenan individual'spersonalmotivation
who
andan informed
betweenan agentwithimperfect
theinteractions
principal
self-knowledge
suchas offering
rewardsandthreatening
choosesan incentive
structure,
punishments,
delegating
a task,or simplygivingencouragement,
praise,orcriticism.
andperformance,
andthere
Itis a centralthemeofeconomicsthatincentives
promoteeffort
is a lot of evidencethattheyoftendo (e.g. Gibbons(1997), Lazear (2000)). In otherwords,
In psychology,
forthedesiredbehaviour.
their
rewardsserveas "positivereinforcers"
contingent
of
A long-standing
effectis muchmorecontroversial.
paradigmclashhas opposedproponents
who arguethatrewardsmayactuallyimpair
theeconomicview to the"dissonancetheorists",
reinforcers",
makingthem"negative
especiallyinthelongrun(see, e.g.Kruglanski
performance,
(1978) foran accountof thisdebate,and Deci, Koestnerand Ryan(1999) fora recentand
ofexperimental
results).
meta-analysis
comprehensive
489

490
REVIEW OF ECONOMIC STUDIES
andfieldevidenceindicatesthatextrinsic
motiIndeed,a substantial
bodyofexperimental
vation(contingent
can
conflict
with
intrinsic
sometimes
motivation
individual's
rewards)
(the
desireto perform
thetaskforits own sake). In a now classicalexperiment
(see Deci, 1975),
wereeitherpaid ornotpaidto workfora certaintimeon an interesting
collegestudents
puzzle.
Thoseintheno-reward
condition
morein a laterunrewarded
playedwiththepuzzlesignificantly
"free-time"
a greater
interest
inthetask.Thisexperiperiodthanpaidsubjects,andalso reported
menthas sincebeenreplicated
with
numerous
variations
in
manytimes,
design(e.g.Wilson,Hull
in
of
For
and Johnson,
and
similar
effects
werefoundforhighinstance,
1981)
types subjects.
schoolstudents
in tasksinvolving
verbalskills(Kruglanski,
FriedmanandZeevi,1971),andfor
in activities
drawingwithnewmaterials(Lepper,GreeneandNispreschoolchildren
involving
withwhatwe shallcall the"forbidden
fruit"
bett,1973). In dailylife,parentsare quitefamiliar
adults
to
effect:powerfulor salientconstraints
of
enforce
the
employedby
prohibition some
the
child's
internalization
the
often
decrease
of
Kohn
adults'
activity
subsequent
disapproval.1
a
of
the
results
from
aimed
at
to
lose
(1993) surveys
variety programmes
getting
people
weight,
or notoffering
or wearseatbelts,eitheroffering
rewards.Consistently,
individstopsmoking,
uals in "reward"treatments
showedbettercomplianceat thebeginning,
butworsecompliance
in thelongrunthanthosein the"no-reward"
or "untreated
controls"groups.Takentogether,
thesemanyfindings
indicatea limitedimpactofrewardson "engagement"
and
(current
activity)
a negativeone on "re-engagement"
(persistence).
A relatedbodyofworktransposes
theseideasfromtheeducationalsetting
totheworkplace.
In well-known
Etzioni(1971) arguesthatworkers
findcontroloftheirbehaviour
contributions,
via incentives
and "dehumanizing",
andDeci andRyan(1985) devotea chapterof
"alienating"
theirbookto a criticism
oftheuse ofperformance-contingent
rewardsin theworksetting.2
And,
Baron
and
without
conclude
that:
(1999,
99)
contingent
condemning
compensation,
Kreps
p.
orpay-for-performance
thatthebenefits
of[piece-rate
Thereis nodoubt
incentive
systems
canbeconsiderably
whenthesystems
undermine
workers'
intrinsic
devices]
compromised
motivation.
and
Kreps (1997) reportshis uneasinesswhenteachinghumanresourcesmanagement
discussingthe impactof incentivedevices in a way thatis somewhatforeignto standard
economic theory.And indeed,recentexperimental
evidenceon the use of performancethatexplicitincentives
sometimes
resultin worsecompliance
contingent
wagesorfinesconfirms
thanincompletelabourcontracts(Fehr and Falk (1999), Fehrand Schmidt(2000), Gneezy
and Rustichini
(2000a)). Relatedly,
(2000b) findthatoffering
GneezyandRustichini
monetary
incentivesto subjectsforansweringquestionstakenfroman IQ teststrictly
decreasestheir
unlessthe "piece rate"is raisedto a highenoughlevel. In thepolicydomain,
performance,
citizensin Swiss cantonswherethegovernment
was
(1997) surveyed
FreyandOberholzer-Gee
considering
locatinga nuclearwasterepository;
theyfoundthatthefraction
supporting
sitingof
thefacility
in theircommunity
fellbyhalfwhenpubliccompensation
was offered.
Our aim herewill be twofold.First,we wantto analysethe "hiddencosts"of rewards
andpunishments
froman economicand cognitive
rather
thanjustpositan aversive
perspective,
workquiteeffectively
inmanyinstances,
one
Indeed,giventhatincentives
impactonmotivation.
in whatcases theyshouldbe used withcaution.More generally,
needsto understand
we seek
to givea precisecontent
to thelooselydefinednotionsofintrinsic
andextrinsic
and
motivation,
to clarify
ofFrey(1997),thelattershouldbe expectedto "crowdout"
when,in theterminology
1. See, e.g. Lepperand Greene(1978). Relatedly,Akerlofand Dickens(1982) suggestthatimposingstiffer
ifitundermines
individuals'"internal
forobeyingthelaw.
penaltiesforcrimesmightbe counterproductive,
justification"
2. See also LepperandGreene(1978), Kohn(1993) andFrey(1997).

BENABOU & TIROLE
INTRINSIC AND EXTRINSIC MOTIVATION
491
or "crowdin" theformer.
This information-based,
ourapproach
analysisdistinguishes
strategic
oftheseissues.
fromFrey'sreduced-form
treatment
We consideran individual(theagent,"he") who facesuncertainty
abouthis payofffrom
The
unknown
variable
be
a
a
action.
could
characteristic
ofthepersonhimself,
taking particular
how difficult
or enjoyableit
suchas raw ability,of thespecifictaskat hand(long-run
return,
is to complete,etc.),or of thematchbetweenthetwo.Naturally,
theagentwill undertake
the
in his ownabilityto succeed,and in theproject'snet
confidence
taskonlyif he has sufficient
As a result,peoplewitha stakein hisperformance
have strongincentives
to manipulate
return.
relevant
to
Given
that
effort
and
are
his
self-knowledge.
signals
ability usuallycomplements
in theproduction
of performance,
as well as his
theywill wantto boosthis self-confidence,
in thetask.Thus,inmuchofthispaper,a principal
interest
friend,
teacher,
boss,
(parent,
spouse,
vested
interest
in
a
has
a
benefit
the
etc.,
"she")
(derives
from) agent'sundertaking
colleague,
andsucceedingintheactivity.
bothpartieshaveprivateinformation
In manycircumstances,
abouttheagent'ssuitability
and of the
to thetask.The agentusuallyhas betterknowledgeof his previousperformances
relevantcircumstances
effort
the
factors
that
have
come into
(his
intensity, idiosyncratic
may
will
He
often
also
receive
about
the
attractiveness
or
of
privately
play).
signals
unpleasantness
thetask,eitherfromthirdparties(friendstellhimthatschoolis notfun,whilecigarettes
are
similarones in thepast,or simplyfromhisownexperienceas he
cool), fromhavingperformed
outthecurrent
one. The principal,
on theotherhand,oftenhas complementary
startscarrying
task
or
the
information
about
the
agent'sprospectsfromit. For example,a teacheror
private
the
is
better
able
to
ofthesubjector assignment,
with
which,together
difficulty
manager
judge
theprobability
ofsuccess.The principalmayknowbetter
thanthe
theagent'sability,
conditions
in termsof eitherbeingenjoyableto perform,
thetaskis attractive,
or havinga
agentwhether
while
for
the
less
direct
information
about
the
Last,
having
agent's
previous
highpayoff
agent.
shemaybe bettertrainedat interpreting
it due to herhavingperformed
thetask
performances,
orhavingseenmanyothersattempt
it.As we shalldiscusslateron,theobservation
that
herself,
relevant
to an individual'sself-view
othersmayhaveprivateinformation
underliesseveralfields
It is thistypeofprivateinformation
of researchin educationand management.
thatwillbe our
focus.3
In the firstpartof the paperwe thusstudythe attributions
made by an agentwhena
makesa decision,suchas selectinga reward,delegatinga
principalwithprivateinformation
the agent,thatimpactsthe latter'swillingnessto perform
task or moresimplyencouraging
the task. As was pointedout by Cooley (1902), the agentshouldthentake the principal's
in orderto learnabouthimself.The agent'sattribution
of ulteriormotivation
to
perspective
the principal,or, in economicsparlance,his attemptto inferher privateinformation
from
herdecision,is whatCooley termedthe"looking-glass
self".The influence
of theprincipal's
is thentwofold:direct,
itsimpacton theagent'spayoff
decisionon theagent'sbehaviour
through
andindirect,
hisinference
fromaccomplishing
thetask(keepinginformation
constant),
through
and extrinsicmotivation
we thusadopta cognitiveapproach,
process.In analysingintrinsic
assumingthattheindividualseeks to extractfromthewordsand deeds of thosearoundhim
signalsaboutwhattheyknowthatconcernshim.4
focuson themorestandard
case whereworkers
haveprivate
3. DelfgauwandDur(2002),incontrast,
information
abouttheirown (dis)utility
fromworkingon thetask,whichtheymaythenwantto signalto, or conceal from,the
employer.
4. We in factfocuson the polar case whereindividualsare fullyrationaland Bayesian.Althoughpeople
we wantthemodelto reflect
thefactthattheycannotconstantly
fool
surelymakemistakesin processinginformation,
orothers.
themselves,

492
in the shorttermand that,as

We firstshowthatrewardsmaybe onlyweak reinforcers
in
stressedbypsychologists,
have
hidden
that
costs,
theybecomenegativereinforcers
theymay
The idea is thatby offering
once theyare withdrawn.
theprincipal
incentives,
low-powered
trusts
the
rewards
a
limited
that
she
have
(extrinsic
motivation)
agent.Conversely,
signals
impact
andreducetheagent'smotivation
toundertake
oncurrent
similartasksinthefuture.
performance,
We thenuse thesamelogicto showthatempowering
theagentis likelyto increasehis intrinsic
be
offered
others
detrimental
to one's self-esteem
andcreate
motivation.
Similarly,
help
by
may
a dependence.
More generally,we concludethatexplicitincentivesmay,but need not, be negative
ouranalysisactuallysuggestswhenrewardsandpunishments
reinforcers;
work,andwhenthey
The "crowdingout"case firstrequiresthattheagentbe less knowledgeable
in some
backfire.
of information
is likelyto be moreimportant
in
dimensionthantheprincipal;thisasymmetry
somesettings
standardized
health,newoccupations)thanin others(relatively
(education,
jobs).
condition
musthold,in thattheprincipalmustbe moreinclinedto offer
a sorting
Furthermore,
a rewardwhentheagenthas limitedabilityor thetaskis unattractive.
therewillbe
Otherwise,
a
one should
in".
when
concerned
about
of
Thus,
rewards,
potential
negativeimpact
"crowding
aboutthetaskor theagent's
firstcheckwhethertherewardproviderhas privateinformation
talent.One shouldthen,as theagentdoes,thinkthrough
theprovider'sulterior
motivation
and
fromgivinga contingent
rewardis affected
her
howherpayoff
by knowledge.
we also investigate
howtheprincipal
In additiontolow-powered
can sometimes
incentives,
to
intheagent's
use non-contingent
to
her
confidence
(similar
"burning
money")
payments
signal
their
incentive
effects
the
the
While
short-term
of
differ,
slope
reducing
compensation
ability.
schedule(thepiece rate)and increasing
itsbase part(thefixedsalary)are tworelatedwaysin
in equilibrium
whichtheprincipal'sconfidence-management
motivewillbe reflected
contracts.
Each has itsdomainof applicability
on intrinsic,
or
(as we show),butbothhavesimilareffects
as well as on wage inequality.
Indeed,by weakeningthelink(elasticity)
longrun,motivation,
bothsignallingstrategies
betweenperformance
and compensation,
reduceearningsinequality
in a Lorenzsense.
acrossworkers,
Whilemostofthesocialpsychology
andhumanresourcemanagement
literatures
emphasize
the necessityof boostingand protecting
the self-esteem
of one's personaland professional
of theirspouse,child,colleague,
partners,
peopleoftencriticizeor downplaytheachievements
In thesecondpartof thepaperwe considerseveralreasons
subordinate
or teammate.
coauthor,
whythismay be, and formalizein moredetailwhatis perhapsthe mostcommonone. We
battlesfordominance:by loweringtheother'sselfarguethatsuch"ego bashing"mayreflect
withintherelationship,
an individualmaygainreal authority
confidence,
enablingherto steer
direction.
This generallycomes at a cost,however,
joint decisionsor projectsin a preferred
thepartner
fromseekinggood projects,or fromexerting
effort
namelytheriskof demotivating
at theimplementation
two relatedformsof ego
stage.We studythistradeoff,
distinguishing
omitstoreport
newsfavourable
to theagent;
bashing:one is "byomission",wheretheprincipal
inwhichsheexplicitly
theotheris active"disparaging",
belittles
theagent.Whilebothstrategies
thefirst
lowertheagent'sself-confidence,
oneis reversible
(thenewscan alwaysbe revealedlater
forthetimingof
on), whereasthesecondis not.Thisis shownto haveinteresting
implications
whereboththe
disclosuresofinformation
(ego bashingandego boosting)in situations
strategic
andjointcontrolrightsareat stake.
agent'sinitiative
Thepaperis organizedas follows.Section1 providesa generalintroduction
tothe"lookingof intrinsic
and extrinsic
motivation,
glass self"mechanism.Section2 analysestheinterplay
on thehiddencost of rewards.Section3 showshow themaininsights
focusingin particular
such as delegation,help and coaching.
strategies
carryoverto otherconfidence-management
Section4 studiesthecostsandbenefits
ofego bashing.Section5 offers
remarks.
concluding

BENABOU & TIROLE
493
1. THE LOOKING-GLASS SELF

thenspecializeit in therestof
We beginherewitha relatively
framework,
generaland abstract
in specificpsychological
andeconomicapplications
thanin a
thepaper.Readersmoreinterested
oftheunderlying
mechanisms
unifiedpresentation
to Section2.
maywanttoproceeddirectly
Thereare twoplayers,an agent(he) and a principal(she). The agentselectsa continuous
The principalknowsa
levele thatimpactsbothhis andtheprincipal'sutilities.
actionor effort
ofthetaskortheagent'sabilitytoperform
the
it,thataffects
P, suchas thedifficulty
parameter
she selectsa policyp (belongingto RI,forexpositional
frome. Thusinformed,
agent'spayoffs
reward,
simplicity)
priorto theagent'schoiceof action;thismaybe a wage or contingent
help,
disclosureof information,
or anyother"extrinsic
motivator"
thatcan
surveillance,
delegation,
theagent'sbehaviour.
The agent'sand theprincipal'spayoffs
are
or indirectly,
affect,
directly
receive
denotedUA(P, e, p) and Up(3, e, p). Priorto hisdecision,theagentmayalso privately
aboutP. We shallassumeforsimplicity
a signala thatis informative
thatthissignalis redundant
for(p, a)), butnone
ifone alreadyknowstheprincipal'sinformation
statistic
(P is a sufficient
on
Whatreallymatters
of ourmainconclusionshinge thisassumption.
is thattheprincipalhas
ofhimselfor histask,and (forthespecific"trust
information
relevant
to theagent'sperception
be uncertain
abouttheagent'smotivation.
Thetiming
effect"
discussedbelow)thattheprincipal
ofthegameis as follows:
learnstheparameter
Stage 1: The principal
3 andselectsa policyp.
the
chosen
2:
After
Stage
observing policy
by the principaland learninga, the agent
choosesan actione.
thattheagent'soptimalactione* dependsonly
Letus assumehere(fornotational
simplicity)
of
theunknown
The conditioning
on p and on his conditional
expectation
parameter.5
(f(a, p)
to
the
see through
the
of 1 on p is the"looking-glass-self"
tries
phenomenon,
whereby agent
that
led
As
in
to
selected.
as
the
ulterior
motives
p being
long
agent'sparticipation
principal's
is notat stake,theprincipal'sexpectedpayofffromchoosinga policyp when
therelationship
shehas information
P is thus
Ea,[Up((p,e*(p, P(a, p)), p) I 3].
theprincipal'schoice of policytakesthree
(again forsimplicity),
Assumingdifferentiability
intoconsideration:
effects
Ear
Up
-ap
aUp
ae*
ae
3p
ep
?
+
Up
-
ae*
p
3 =0.
^ af
ae ap ap p
(1)
ofp on theprincipal's
Forexample,
The first
termon theL.H.S. of(1) is thedirecteffect
payoff.
if the policyis a wage or bonus,as in the nextsection,thistermis the directcost of this
constant.
The secondtermcorresponds
tothedirect
compensation,
keepingtheagent'sbehaviour
to
Thus,ceterisparibus,a bonusincreasestheincentive
impactof p on theagent'sbehaviour.
havebeeninvestigated
in detailin theagencyliterature.
Thesetwoeffects
exerteffort.
in thethird,
morenoveleffect,
whichcorresponds
to theprincipal's
We shallbe interested
motive.Whenevertheprincipal'schoiceofpolicyis guidedbyprivate
confidence-management
theagentwill updatehis beliefsin reactionto thechoiceof p (termaf/ap). The
information,
of herchoicewill affect
principalmustthentakeintoaccounthow theagent'sinterpretation
his self-confidence-that
thetask.A particularly
is, his perceivedprospectsfromundertaking
issueis whether
a higherlevelofself-confidence
affects
theagent'sdecisionmakingin
important
distribution
ofPf,given(o, p).
itwilldependon p andon theconditional
5. Moregenerally,

494
a direction
thattheprincipallikes((aUp/ae)(ae*/la) > 0) or dislikes((Up/lae)(ae*/l8) <
2 and 3 will examinemanycommonsituationswheretheprincipalgainsfrom
Sections
0).
the
Section4, on theotherhand,will focuson cases where
boosting agent'sself-confidence.
to enhancetheagent'sself-confidence,
ormayevenwantto undermine
shemaybe reluctant
it.
motiveitselfcan itselfarisethrough
The confidence-management
twochannels,whichwe
The formerariseswhentheagent'stype,on
termtheprofitability
effectand thetrusteffect.
enterstheprincipal'sobjectivefunctionin a way
whichtheprincipalhas privateinformation,
different
thatwouldlead hertooffer
policiestodifferent
agents,evenifitdidnotaffect
anyone's
of
level.Thisdifferential
a
toa standard
effort
profitability givenpolicyacrosstypescorresponds
condition;
thus,fora one-dimensional
policyitmeansthat6
sorting
a {a Up/P
afi aUpl/ae
has a constant
sign.
(2)
are (proportionally)
moresensitive
Suppose,forinstance,thatan employer'sexpectedprofits
to the employee'sabilitywhenthe latteris empoweredto make decisionsthanwhenhe is
The principalwill then,ceterisparibus,delegatemoreto employeesshe
closelymonitored.
thinksmorehighlyof, and delegationwill be seen as good news by employees.In contrast,
effectexistswhentheprincipal'sprivateknowledgeconcernsthecostof
no suchprofitability
the
orotheraspectsofitthatbearsolelyon theagent'sutility,
andnotonher
task,
accomplishing
ownpayoff.
on thecontrary,
Thetrust(ordistrust)
ariseswhentheprincipal's
effect,
privateinformation
suchas thecostorpleasureofaccomplishing
concernsa parameter,
thetask,thatdirectly
enters
in
the
the
incentive
envisioned
The
issue
here
is
how
agent's
problem-as
only
by
principal.
the principalis as to the agent'sintrinsic
confident
motivation-that
is, how she thinksthe
whohas bad newsabouttheagent's
to it.A principal
agentperceivesthetaskandhis suitability
will
be
about
the
own
fearthat
P
agent's
pessimistic
signala, andmayconsequently
parameter
to
in
the
absence
of
he will notbe motivated
exert
effort
incentives.
added
enough
Providing
will at leastpartially
revealtheprincipal'sdamaginginformation
incentives,
however,
stronger
thesignala). Thus,once again,extrinsic
motivation
may"crowdout"intrinsic
(compounding
willbe shapedbythistradeoff.
andtheoptimalcontract
motivation,
Itis worthnotingalso thatforthepuretrust
effect
tooperate,theremustbe someuncertainty
(a) on thepartof theprincipalabouttheexactincentives
perceivedby theagent.Otherwise,
and the principal
thelatter'sresponsefl(p) to any policyp would be perfectly
predictable,
wouldsimplymaximizeUp(8, e*(p, f(p)), p). It is easilyverified
that,absenta profitability
effect(i.e. whentheexpressionin (2) is zero,e.g. whenUp is independent
of 8), theoptimal
is
and
hence
the
then
uninformative
of,
about,
completely
independent
agent'stypef. It
policy
thattheagentdoes receivea privatesignal,causingthe
is quitereasonableto assume,however,
As mentioned
abouthisresulting
motivation.
earlier,thismay
principalto worry(be uncertain)
orfromfriends
sourceof
comefrompastpersonalexperience,
andbrethren.
Another
important
is theagent'sowninitialperception
as he startsperforming
information
thetask:howhe feels
afterreadinga few
aftera fewweeksor monthson thejob, at schoolor in a dietprogramme;
on a puzzle or paintinga fence,etc.
book,a fewminutesof working
chaptersof a challenging
In manysuchreal-world
as a continuation
decisione shouldbe interpreted
or
cases, theeffort
decision-thatis, whether
orornottheagentwillcarrythetasktocompletion.
"perseverance"
6. In Section2.2.2 we shall actuallyconsidertwo-dimensional
policies,consistingof a lump-sumpayment
bonus.We shallthenuse thegeneral"implementability
condition"(see, e.g. Fudenberg
and a performance-contingent
and Tirole (1991, pp. 258-260)) thatextendsthe Spence-Mirleessortingconditionto multidimensional
policies
P= (P1.
,Pn): EU -(l
1
(Ep/,.)
havea constant
sign.
-) must

BENABOU & TIROLE
495
focusthetrust
To bringintosharper
andprofitability
letus specializeourframework
effects,
further.
of
our
bonuses,
(e.g.
applications
Many
help,delegation)willsharea commonstructure,
wherethe principal'spayofffunctioncan be writtenas Up(0, e, p) = eA(8, p). In this
effort
e is a zero-onedecisionofwhether
theagent'sequilibrium
ornottoundertake
formulation,
=
A is theprincipal's
1.
thetask,andthefunction
when
e
The
effect
expectedpayoff
profitability
is thengoverned
the
condition
by sorting
8
S
8Up/3p
(Up/p)
-- -
(eAP
)
A(P, p)
e
-
82lnUp
sign,
InUp has a constant
fap
(3)
Uplp/8e
ofcomplementarity.
whichis a simpleform
assumenow thatUp, hencealso A, does notdependon
To capturethepuretrusteffect,
8 at all. Then,undermildconditions
on UA(P, e, p) andtheconditional
distribution
G(a I f),
theagentwill workonlywhenhe receivesa signala betterthansomethreshold
a* (p), which
The principal'sexpectedprofits
dependson thepolicyp due to thelooking-glass
phenomenon.
canthenbe written
as [1- G(a*(p) I P)]A(p). One maythen,intuitively,
treattheagent'saction
a* as theeffort
variablethattheprincipalis trying
threshold
herpolicyp,
to influence
through
andlookat a sorting
forthe"reduced-form"
condition
function
[1 G(a* I f)]A(p).
objective
Thisyields
'(p)
aupp/ap - 1a - G(a* 1 A)
3
/
-6
/
Up/a*
g(a* IP)
A(p)
The signof thisexpressioncorresponds
to a monotonelikelihoodratioproperty
(MLRP), that
willbe seento playa keyrolein thetrusteffect.
a principalwhoobservesa "bad"P
Intuitively,
is worriedthattheagentwillreceive(orhas received)a bad signala, so shefeelscompelledto
is bad newsfortheagent.
offer
hima higherp. This,in turn,
2. THE HIDDEN COSTS OF REWARDS

We shallnow specializethegeneralframework
to a moreconcretemodel,wheretheinterplay
of intrinsic
can be moretransparently
and extrinsicmotivation
and completelyanalysed.In
how the "looking-glassself" mechanismcan make high-powered
incentives
demonstrating
schemestoocostlyforan optimizing
to adopt,we shallfirst
principal
emphasizethetrusteffect,
thenshowhowtheprofitability
can reinforce
effect
or counteract
it.Finally,we shallrelatethe
model
the
and
results
of
our
to
relevant
andarguethattheyaccord
literature,
premises
psychology
rather
wellwithit.
Theremayof coursebe stillothersourcesforthehiddencostsof rewards;letus mention
heretwofairlyobviousones. Concerning
theengagement
part,Condryand Chambers(1978,
that
often
distract
attention
from
"rewards
the processof task activityto the
p. 66) suggest
of
a
As
for
the
reward".
product getting
re-engagement
part,thesesame authorsarguethat
current
rewardsmaydecreasetheindividual's
to
becausetheyorientactivity
willingness persist,
towardperformance
ratherthanprogress.In otherwords,Condryand Chambersofferwhatto
economistsis a familiar
multitask
theindividualis led by short-term
rewardsto
interpretation:
sacrifice
chooseeasier
Thus,subjectswhoarepaidtosolveproblems
long-run
payoffs.7
typically
ones thanthosewho do notexpectanypayment.
Whilethisexplanation
is well taken,it does
7. For example,in Laffontand Tirole(1988) an agentexertseffort
cost
todaybothto reducecurrent
operating
andto increasefuture
Faced witha higherpoweredincentive
scheme(a greatersensitivity
of current
reward
efficiency.
to current
cost level),theagentsubstitutes
towardcurrent
cost reductionand sacrificeslong-term
For a
investment.
broaderperspective
see Holmstrom
on multitasking,
andMilgrom(1991). Condryand Chambers'argument
followsa
similarpattern,
withtheindividualallocatinghis attention
betweentheresolution
of thecurrent
problemand a "deeper
oftheproblem.
understanding"

496
For instance,theindividualmaynotbe awareof futurere-engagement

not applyuniformly.
or
decisionthatcrowdsoutcurrent
opportunities,mayjustnotfaceanyinvestment
efficiencyas in thepreviously
mentioned
and seatbelts.The
programmes
involving
weightloss,smoking,
multitask
about
storycanalso notaccountfortheevidencedrawnfromsubjects'posterior
reports
in theactivity.
theirintrinsic
interest
2.1. Taskattractiveness
and thetrusteffect
Thissectiondescribestheinterplay
betweenintrinsic
andextrinsic
in a situation
motivation
with
It formalizes
theidea emphasizedin thepsychology
literature
thatthesubject
onlya trusteffect.
findsthetaskless attractive
whenoffered
a reward.
As beforethereare twoplayers,an agentand a principal.The agentchooseswhether
to
or task(exerteffort)
undertake
an activity
or not(exertno effort).
His disutility
or costofeffort
is denotedc e [c,Z]. If thetaskis successfulit yieldsdirectpayoffsV > 0 to theagentand
ifitfails,theirgrosspayoffs
W > 0 totheprincipal;
arebothequalto 0. Successrequireseffort,
forsuccess:let 0 e (0, 1] denotetheprobability
buteffort
is notsufficient
of successwhenthe
agentexertseffort.
Ourfocusin thispaperis on theprincipal'ssuperiority
of information;
in thissection,the
concernsthecostthattheagentwillbearifhe decidesto undertake
thetask;thatis,
asymmetry
=
With
little
loss
of
we
assume
that
the
knows
c
The agent
c.8
generality,
principal
perfectly.
/
knowsthatc is drawnfroma cumulative
distribution
function
F(c) witha densityf(c) thathas
fullsupport;
he also learnsa signala E [0, 1] withconditional
distribution
G(cr I c) andpositive
densityg(a I c). We assumethata highera is "goodnews",in thesenseoftheMLRP
forall al anda2 with >
ao
g(al | c)
in c.
(4)
I c) is decreasing
g(a2 I c)
In ordertoinducetheagenttoperform
thetask,theprincipal
can offer
a rewardthatis contingent
on effort
if she observesit, or on outputif she does not. In thepresentcontextwherethe
of success0 is commonknowledgeand bothpartiesare risk-neutral,
theformer
probability
is equivalent
to thelatter,
as is perhapsmosteasilyseenfor0 = 1. We shalltherefore
situation
focustheexpositionon contracts
wheretheprincipalselectsa rewardor performance-based
"bonus"b < W,tobe paidincase ofsuccess.In applications
wheretheagentis paidjusttocarry
outthetask,successfully
orunsuccessfully
a
child
to reada book,independently
of
(e.g. paying
it will turnoutto be usefulto himor his parents),one will remember
whether
thatwhene is
observablea bonusschemeis equivalentto a wage offerof w =_Ob,in exchangeforthemere
Note also thatnegativewages or bonusesare allowed(as in theTomSawyer
supplyof effort.
illustration
discussedbelow).9
abstract
fromtheagent'sparticipation
We shallinitially
andnormalizethenonconstraint,
As
we
of
the
contract
to
zero.
show
later
theresults,
this
does
not
affect
since
on,
contingent
part
theagent'scostc hasno effect
ontheprincipal's
from
him
to
the
task.
The
gain
perform
inducing
in
benefit
case
of
is
thus
V
net
success
b
and
the
is
W
while
both
b,
+
agent's
principal's
parties
obtain0 in case of failure.The stage-1policydecisionfortheprincipalis thusthechoiceof a
rewardwhichwe formalize
as beinga monetary
one; but,in linewiththepsychology
literature,
2,
itcouldbe V, as longas itis uncorrelated

withtheprincipal's
8. Equivalently
the
payoffW. As explainedearlier,
oftheprincipal
concernsprivateinformation
thatdirectly
entersonlyin theagents'incentive
puretrusteffect
problem.
tobe non-negative
rewards
couldbe constrained
thatmakessensewhentheagent
9. Alternatively,
(an assumption
withoutdestroying
can sabotagehis observableperformance
V, or whenV is a privatebenefitor learningexperience
fromundertaking
thetask).Proposition
constraint
affects
1,in whatfollows,wouldthenstillhold,as thenon-negativity
to whichtheprincipalcanrevealherinformation.
onlytheextent

BENABOU & TIROLE
497
b could withslightmodifications
be interpreted
as workingconditions,
or
praise,friendliness
(minus)punishment.
ifandonlyif
Weretheagenttoknowhiscostc, he wouldchooseto exerteffort
O(V + b) > c.
as theprincipal,
therewardis a positivereinforcer.
Thus,whentheagenthasthesameinformation
In ourmodel,however,
onlytheprincipalobservesc; theagentreceivesonlya signala aboutc.
We shallnowanalysetheperfect
Bayesianequilibriaofthistwo-stage
game.Whenoffered
a rewardb, theagentupdateshisbeliefsaboutc usingtheprincipal'sequilibrium
Let
strategy.
assessmentofthetask'sdifficulty,
thatis, his
^(a, b) -E E[c j a, b] denotetheagent's(interim)
on his signalandtherewardhe is offered.
of thecost,conditional
Thisexpectation
expectation
ofthesignala. Lettinge E {0, 11denotetheagent'seffort,
is a weaklydecreasingfunction
his
is UA = [O(V + b) - 8(a, b)]e, and thereexistsa threshold
utility
signala*(b) in [0, 1] such
that:10
(5)
ifandonlyifa > r*(b).
c(a, b) < O(V + b)
theperformance
The principal'spayoff
ifsheoffers
bonusb whenherinformation
is c is thus
(6)
Er[Up] = 0[1 - G(a*(b) I c)][W - b],
whichshemaximizesoverb.
thepaper,we shallignore"degenerate"
receives
Throughout
equilibriawheretheprincipal
b < W. Suchequilibria,
zeroregardless
ofhertypebecausetheagentexertsno effort
whenever
whentheyexist,are supported
beliefsthata principalwho offers
byverypessimistic
anybonus
below W musthavereallybad information,
degenerate
say,c = -. Conversely,
equilibriaare
a bonusslightly
ruledoutwhen0 (V + W) > -: byoffering
belowW, theprincipalcan ensure
Let us nowdenoteby B thesetof equilibriumbonuses;thatis, b E B if
thattheagentworks.11
offer
forsome"type"c. Clearly,ifbl andb2both
andonlyifb is an equilibrium
bytheprincipal
belongto B, withbl < b2,then
> a*(b2).
(7)
a*(bl)
Ifthisinequality
ofherinformation
didnotholdtheprincipalcould,regardless
aboutc, (weakly)
whileoffering
increasethelikelihoodof effort
thelowerwage. Therefore,
b2 couldnotbe an
offer.
equilibrium
Proposition1. In equilibrium:
(i) Rewardsarepositiveshort-term
reinforcers:
ifbl < b2,thena*(bl) > a*(b2).
a lowerwage or bonus:ifbl is
(ii) Rewardsare bad news,in thata confident
principaloffers
a rewardoffered
whentheprincipalknowsthetask'sdifficulty
to be cl, and b2 is offered
whenshe knowsittobe c2 > cl, thenb2 > bl.
theagent'sassessment
(iii) Rewardsundermine
ofthetask'sattractiveness:
forall (al, a2) and
all equilibrium
rewardsbl < b2,
E[c I at, bil]< E[c I a2z,b2.
10. If E(c I 1,b) > 0(V + b), onecan definea*(b) = 1; ifE[c I 0, b] < 0(V + b), one can definea*(b) = 0.
is an almost,butnot
11. Degenerate
information
equilibriawouldalso disappearifwe assumedthattheprincipal's
sufficient
statistic
fortheagent'struecostc, in thesensethatthereis alwaysa verysmallbutpositiveprobability
totally,
thathe undertakes
thetaskregardless
oftheinference
drawnfromthebonus
thattheagent'ssignala is so favourable
offer.

498

Futureassessmentsof taskattractiveness
are also alwaysreducedbyan increasein the
reward:theexpectation
on
c
conditional
a, b, theactionand theoutcomeis decreasing
of
in b regardless
the
and
the
outcome.
action
ofor,
Proof Part(i) has alreadybeen established.The proofof part(ii) restson a standard

revealedpreference
argument.
Suppose thatbi is an optimalbonus when the principalhas
=
i
information
and
denote
1,2,
ci,
cri - ca*(bi). Since bi is optimalgivenci, it mustbe
that
hence
0[1 - G(cri I ci)][W - bi] > 0[1 - G(aj
I ci)][W
- bj],
1 - G(ol I cl)
W - b2 1 - G(orlI c2)
>
>
(8)
1 - G((o2 ) - W - bl - 1 - G(o2 I 2)
Since c2 > cl, theMLRP requiresthatcal > 2. Hence bl < b2 sincec*(.) is decreasing.
This
establishespart(ii) which,in turn,impliesthatpoolingoccursonlyoverintervals.12
Therefore,
iftheprincipaloffersbl to types[c1,Fi] andb2 > bl to types
[c2, 2], itmustbe that <2c2.
Thisestablishes
part(iii) oftheproposition. II
themainideaofhowthetrust
effect-theprincipal's
1 demonstrates
Proposition
expectation
of whatviewstheagentis likelyto hold-gives riseto a conflict
betweenextrinsic
andintrinsic
whichin turnshapestheoptimalcontract.13
It also has a numberof interesting
motivation,
additionalimplications
andextensions.
* Forbidden
associatedwitha less attractive
task;
fruits.A higherrewardis, in equilibrium,
bonuses(orhigherwageswheneffort
is observable)reduceintrinsic
motivation.
therefore,
are themostappealing.14
"forbidden
fruits"
Indeed,theoptimalbonuscould
Conversely,
well be zero, perhapseven negative.A famous(literary)case is thatof Tom Sawyer
bribesfromotherboystoletthempainta fencein hisplace:
demanding
Therewasnolackofmaterial;
little
while;theycametojeer,
boyshappened
alongevery
towhitewash....
butremained
Andwhenthemiddle
oftheafternoon
came,from
being
a poorpoverty-stricken
Tomwasliterally
inwealth.
He hada
boyinthemorning,
rolling
ofcompany-and
thefencehadthree
coatsof
nice,good,idletimeallthewhile-plenty
whitewashon it! If he hadn't runout of whitewashhe would have bankruptedeveryboy in
thevillage.15
12. Thereis in factno pure-strategy

theagent'sbehaviourwould
In suchan equilibrium,
equilibrium.
separating
overbonusesthatinducecompliancewithprobability
notdependon his signal.The principal's
1 willthenbe
preference
thesameforall c (choosethelowestone),and so somepoolingmustnecessarily
occur.
13. Regarding
oftheagent'sviewofthetask'sattractiveness
part(iii), itmightbe objectedthattheundermining
has no consequence,as he will learnthecost c by doingthetaskanyway.Notefirst,
however,thattheagentmaybe
notlearn.Second,ourparameter
thetask,and therefore
c maystandfortheexpected
discouragedfromundertaking
even
cost,whiletherealizedcostalso dependson a period-specific
shock;thechoiceofbonusis theninformative
utility
whentheagentexertseffort.
ofsuccess
bydoingwhenthebonussignalstheprobability
Finally,theremaybe no learning
to it,andsuccessis linkedto a sequenceofinvestments
whoseultimate
outcomeis
payoffV attached
0, orthelong-run
observedonlywitha delay.
14. A simplerelabellingof actionsextendsourresultsto situations
of conflicting
wheretheagent's
interests,
successis theprincipal'sfailure.Supposeforinstancethata parentthreatens
a childwithan expectedpunishment
p >
0 ifhe smokes.The punishment
is (equally)costlytoboth.Let W > 0 and V Z 0 denotetheparent'sand thechild's
healthbenefits)and c thepleasureto be expectedfromsmoking.
payoffsfromhis not smoking(savings,long-term
Confronted
correlatedwithc accordingto theMLRP, thechildrefrains
witha signala positively
fromsmokingif
E(c I a, p) < V + p, whichoccursforar< o*(p); theparentchoosesp tominimizeG(ar*(p) I c))(W + p). The same
concernthatsmokingis likelytobe attractive.
reasoningas earliershowsthata stronger
punishment
signalsa greater
15. MarkTwain,TheAdventures
ofTomSawyer(1876,Chapter2).

BENABOU & TIROLE
499
* Improper
causal attributions.
Whileouranalysisshowsthattheshort-term
effect
incentive
of rewardsis reducedbytheirinformational
it
also
demonstrates
how
an
outside
content,
thepowerof theseincentives.
observermightactuallyunderestimate
The probability
of
and
the
of
both
are
I
I
1
success,
effort, G(a*(b) c),
0[1 G(a*(b) c)],
probability
with
decreasingin c, whichis knownonlyto theprincipal.Because c covariespositively
b in equilibrium,
theobserverwho simplycorrelates
b withoutcomesmayconcludethat
rewards
arenegative
evenintheshortrun.Thereasonis thatsuchunconditional
reinforcers
failto takeintoaccountthe factthata principalseekingto
correlations
or regressions
inducecomplianceoffers
thehighestincentives
to theagentswhowouldotherwise
be the
leastlikelyto work.16
* Robustness.We have so farassumedthatthe bilateralrelationship
was not at stake,
and havetherefore
the
constraint.
Let
U
denote
his outside
agent's
ignored
participation
reservation
whichwe assumetobe independent
oftheattractiveness
of thetaskat
utility,
hand.If 0(V + b) - E(c I a*(b), b) > U, theparticipation
constraint
is notbinding.
Otherwise,
a*(b) mustbe replacedby max{a*(b), a**(b)}, wherecr**(b)is definedby
1 is otherwise
and
unaltered,
0(V + b) - E(c I o**(b), b) = U. The proofofProposition
theconclusionstherefore
unchanged.
* Immediatere-engagement
The re-engagement
effectmayoccureveniftheagent
effects.
does notundertake
thesametaskrepeatedly.
First,theinformation
conveyedbyincentives
on one task(say,mathhomework)spillsoverto correlated
tasks(physicshomework).
rewardsmayhave an immediate
Second,and moreinterestingly,
negativeimpactwhen
is state-contingent.
measurement
Considerthesamemodelas above,where
performance
theprincipalcan initially
threaten
to punishtheagentin case ofpoorperformance
orbad
butlettheeffectiveness
of hermonitoring
nowfluctuate
behaviour,
technology
randomly.
The agentlearns,beforemakinghis decision,whetherhe is likelyto be caughtif he
or to escape detection.The threatof punishment
thenhas a positive(short
misbehaves,
in instanceswhentheagentknowsthatmonitoring
effect
is effective,
term)reinforcement
butonlya negative
one (theanalogueofa re-engagement
whenhe thinks
thathecan
effect)
case is a teenager's
toviolatehis(her)
"getawaywithit".A familiar
heightened
temptation
in situations
on smoking,
wheretheycannotcatchhim(her).
parents'strict
prohibition
trustandprofitability
2.2. Self-confidence:
effects
Whentheprincipalhas privateinformation
abouttheagent'sability0 ratherthanthecost of
thetask,a new effectmayenterintotheagent'sinference
implementing
process.As we shall
whenitis present(thiswilldependon thetypeofcontract
see,thisprofitability
effect,
allowed),
as thetrusteffect.
worksherein thesamedirection
Wenowassumethatc andV arecommonknowledge,
whereasbothpartiesaredifferentially
abouttheagent'sprobability
of success0, whichis drawnfroma distribution
informed
F(O)
withdensityf (0) on [0, 0]. The principalobserves0 exactly,whereastheagentonlyreceives
an imperfect
G(a 0) and densityg(o I 0)
signala E [0, 1], withconditionaldistribution
theMLRP--justas in (4), butwitha highera nowsignalling
a higher0. The agent's
satisfying
is unobservable
to theprincipal,who therefore
effort
conditionsthebonusb on a successful
performance.
16. In thetwo-type
willsee theagent
theobserver
3) forinstance,
exampledevelopedinwhatfollows(Proposition
withpositiveprobability
evenwhenno rewardis offered.
Fromthishe might
working
(perhapsevena highprobability)
and couldthusperhapsbe reducedor doneawaywith.
be led to inferthatrewardsdo notmakemuchof a difference,
This wouldbe a mistake,becausein situations
wheretherewardis actuallygiven,itdoes havea significant
impacton
performance.

500
2.2.1. No lump-sumpayment. As intheprevioussection,we first

restrict
attention
tothe
offered
do
not
involve
case wherecontracts
the
transfers
by principal
anynon-contingent
(lumpThereis thenstillno profitability
effect:in theprincipal's
sumpayments)in eitherdirection.
betweenb and e is
objectivefunctionUp = Oe(W - b), themarginalrateof substitution
17
As
a
1
with
a
of
carries
over
mere
result,
independent 0.
Proposition
changeofnotation:
Proposition2. All theresultsin Proposition1 apply(withtheappropriatechangesin
whentheprincipal'sprivateinformation
notation
and terminology)
and theagent'snoisysignal
bearon theagent'sprobability
c.
ofsuccess0 ratherthanon thetask'sdifficulty
Let us now further
specializethemodelby assumingthat0 can takeonlytwovalues,OH
and 0L < OH, withassociatedconditionaldensitiesfortheagent'ssignalgH(a) and gL(a).
The MLRP meansthatgH/gL is increasing.
We also assumethatrewardscannotbe negative,
b > 0,18andthatifwe denotebyb , k e {L, H}, theminimum
feasiblebonusthatinduceseffort
whentheagentis fullyinformed
abouthisability,
-V,
b*=max
0,IkOk
(9)
(9)
then0 = b* < b3 < W. The agent'sreservation

be
will,withoutloss of generality,
utility
of assumptions
normalized
to zero.We shallreferto thiscombination
as the"two-type
case".
It allowsfora moreexplicitversionof Proposition
all perfectBayesian
2, bothcharacterizing
a uniquerefinedequilibrium;
therefinement
used hereis Cho and
equilibriaand identifying
Kreps'(1987) versionof"Nevera WeakBestResponse"(NWBR).19
case, wheregH/L hasfullsupport(0, +?o):
Proposition3. In thetwo-type
theprincipaloffers
a lowbonusb < b* toa moreable agent(0 = OH),
(i) In anyequilibrium,
and randomizesbetweenthe bonusesb and b* whendealing witha less able agent
(0 = OL).
and it is suchthatb = 0. Theprobability

(ii) Thereis a uniqueNWBR-refined
equilibrium,
b = 0 when0 = OL),x* > 0, and theunconditional
ofpooling(offering
probability
of
no bonus,fH + fLx*,bothincreasewiththeagent'sinitialself-confidence,
fH. Thetrust
thusforcestheprincipaltoadoptlow-powered
and themoreso themore
incentives,
effect
theagentis.
self-confident
Proof See theAppendix. II
2.2.2. Lump-sumpayments. We have so farruledout lump-sumpayments.In some
thesemightindeednotbe feasible-e.g.whenoneofthetwopartieshasno cash,or
applications,
Notealso thatanyequilibrium
outcomein theabsenceoflumpis protected
bylimitedliability.
is stillan equilibrium
whentheyare allowed(sustainedby out-of-equilibrium
sumpayments
beliefsthatsuchtransfers
conveyno information).
17. As before,"degenerate"
of hertype,are
equilibria,in whichtheprincipalreceivesa zero payoffregardless
ruledout-forinstancebyassumingthat06(V+ W) > c.
18. Here again,imposingb > 0 onlyreducesthescope forsignallingin equilibrium,
butleaves all theresults
See also footnote
unaffected.
9 forreasonswhyb < 0 mayjustnotbe feasible.
qualitatively
andTirole(1991,p. 454) fora formaldefinition.
19. See, e.g. Fudenberg
As explainedthere,
NWBR is somewhat
thanCho and Kreps'"intuitive
criterion".
stronger

BENABOU & TIROLE
501
In manyimportant
a moregeneralmenuofcontracts
is feasible,allowing
cases,however,
theprincipalto offera (positiveor negative)up-front
with
a,
wage together a bonusb in case
of success.20Undersymmetric
thelump-sum
transfer
information,
onlyenablestheprincipal
to taxthe(high-ability)
for
the
rent
he
In a situation
derives
from
the
of private
agent
activity.
in contrast,
theprincipalcanuse itto signalthatsheknowstheagenttohavea high
information,
of success.The intuition
is akinto "burning
probability
money",in an amountthatwouldwipe
outanyprofits
to be expectedby inducinga low-ability
agentto work,butwouldstillleavethe
with
if
a
a
undertook
thetask.As we shallsee below,
principal
positivesurplus high-ability
agent
thisis a formofwhatwe termedtheprofitability
effect.
There are, however,manyequilibriain the multidimensional
signallinggame wherea
contractis a pair (a, b). We shall not attempta completeanalysisof the (potentially
very
whichyieldsthe
set,butratherlimitourselvesto thetwo-type
framework,
large)equilibrium
as above,thatthe agent'sabilitycan be eitherhighor low,
keyinsights.Suppose therefore,
0 E {OH,OL1},and denoterespectively
by GH(a) and GL(a) the cumulativedistribution
functions
ofhis signala in each case. We shallassumethat
> OLGL(a),
forall a > 0.
OH
(10)
GiH(ar)
This is essentiallya limitedinformativeness
thatthesignal'sdistribution
condition,
requiring
does not varytoo muchwiththe underlying
state.Its differentiable
version,-a InG(a I
of non-participation
withrespectto0 of an agentusing
0)/a In0 < 1, statesthattheelasticity
rulea mustbe less thanone.21
anygivencutoff
thereis a unique
case, withlimitedinformativeness,
Proposition4. In the two-type
thatsatisfiestheNWBRcriterion.
A principalwho
separatingperfectBayesianequilibrium
observestheagentto be ofabilityOk,k e {L, H}, offers
thecontract(ak,bk),withbk = b*
and aL = 0 < c - OLV = aH. Theprincipal'sexpectedutility
is UL =- OL(V + W) - c when
=
c
when0 OH.Theagent'sexpectedutility
ineach case is,
0 = OL,and UfH OLV + OHW
0 and (OH- OL)V.
respectively,
Proof See theAppendix.
11
itis stillthecase thata morehigh-powered

Thus,evenwiththismoregeneralclass ofcontracts,
incentive
is, a higherb anda lowera:
scheme--that
in theshort-run,
sinceit leads (low 0) agentsto exerteffort
who
(i) is a positivereinforcer
otherwise
wouldnothavedoneso;
no matter
whatthe
(ii) is bad newsfortheagentandpermanently
damageshisself-confidence,
task'soutcometurnsoutto be.
Souvorov(2003) showsthatsimilarconclusionsholdforall NWBR equilibria:under(10),
the high type offersbonus b
and
= 0 and the low typeweakly mixes between
b/ into
the workingsof the profitability
effectthatcomes
Overall,theseresultshighlight
play when lump-sumpayments(as opposed to conditionalbonuses) are allowed: whereas
of 0 due to themultiplicative
formof
-(aUp/ab)/(8UP/ae) = e/(W - b) is independent
expectedoutput,-(aUp/aa)/(aUp/ae) = 1/(0(W - b)) is decreasingin 0, meaningthata
is an investment
transfer
thathas a higherrateofreturn
whentheagent
(in signalling)
lump-sum
bI.
20. Wethankan anonymous

referee
forprompting
us toanalysethelump-sum
case,andtomorecarefully
payment
effects.
betweenthetrust
andprofitability
discriminate
21. It is, forexample,satisfied
by G(o I 9) = 1 - e 0(1-") forallOre [0, 1].

502
ofthecontract
willdependontheparticular
is talented.22
Thecompletespecification
equilibrium
thoseofPropositions
3 and4), butunderthestandard
refinement
thatis played(e.g.contrast
used
scheme
for
more
able
here,thebasicresultofa lessperformance-dependent
compensation
agents
remainsverified.
withtheno-lump-sum-transfer
case. First,bonusesarethe
Therearealso somedifferences
so in thatsense,theinformed-principal
same as undersymmetric
information,
gameleads to
of incentives.
no distortion
Second,becauseof thefixedwage,the(high-ability)
agent'sutility
is nowhigherthanundersymmetric
information.
Thus,thegeneralweakeningofperformancewhichis themodel'smaininsightnow takestheformof a lowershareof
based compensation
In particular,
it stillimpliesthatthedistribution
in totalcompensation.
contingent
compensation
ofagentswillbe moreequal,in a Lorenzsense,dueto the
ofrewardsacrossa givenpopulation
problem.
hereon theuses and limitsofmoney-burning
It is worthcommenting
strategies.
Proposinew dimensionof confidence
tion4 unveilsan important
and indeed,one often
management,
forinstanceconsiderable
resourcesin suchan effort-spending
observesprincipals
time
burning
them
to
to
tasks
"convince"
talks,
trying
agents attempt
challenging
by giving
pep
encouragesoftinformation.
At thesametime,themoney-or time-burning
ments,and similarunverifiable,
forseveralreasons.First,theprofitability
can onlybe partoftheoverallstory,
effect
to
strategy
whichit givesrisewhentheprincipal'sprivateinformation
is about0 does notoccurwhenit is
rewardV). As a result,one can show
aboutthetask'sattractiveness
(thecostc, or theultimate
c or V) remains
3 forunknown
thattheno-lump-sum
(theanalogueto Proposition
equilibrium
are allowed,providedthecutoff
a NWBR equilibrium
whensuchtransfers
oa*is nottoo high.
thepsychologyliterature
reward.In contrast,
on
Second,burningmoneyis a non-contingent
ofcontingent
andtheleadingexperintrinsic
motivation
rewards,
mostlyemphasizestheeffects
Yet anotherlimitation
of lump-sum
imentalcase is thatof a taskof unknownattractiveness.23
in a broaderframework
is thattheytendto attract
"undesirable
transfers
types".Thiswouldbe
ofthepopulationwerelazy-had a largecostof
thecase forexamplein ourmodelifa fraction
effort
c-and iftheprincipalwas unableto distinguish
betweenlazyanddiligent
types.24
In summary,
our analysisdistinguishing
betweenthetrustand profitability
effects
makes
clear thatlow-powered
incentivesand burningmoneyare two waysin whichtheprincipal's
in equilibrium
motivewill be reflected
withits own
contracts--each
on wageinequality
andlong-run
butwithsimilareffect
motivation.
domainofapplicability,
2.3. Back tothedebate
literature
(a) Relationtothepsychology
inthetradition
tothehiddencostofrewards.
Ourapproach,
ofeconomics
Let us nowreturn
on
An alternative
focuses theindividual'sbeliefsand motivation.
and cognitivepsychology,
22. Correspondingly,
theimplementability
condition(see footnote
6) forthetwo-dimensional
policyp = (a, b)
Another
reducesto itscomponent
in a, whichrequiresthatda/dO > 0 in equilibrium.
simpleway to see thattherole
4 appliesunchanged
effect
is toobservethatProposition
transfers
hereis to createa profitability
oflump-sum
whenthe
agentdoes notreceiveanyprivatesignal(GH -- GL), in whichcase we sawin Section1 thattherecan be no puretrust
effect.
of unconditional
literature
has also examinedtheeffects
rewardson intrinsic
23. The experimental
motivation.
noneis found(e.g. Deci et al., 1999). In thesesetups,however,theexperimenter
does not selectively
Typically,
give
is used, and subjectsmaynoteven be awareof
thelumpsumto some subjectsand notto others(a randomization
in treatment).
can be thought
to have a stakein the
differences
It is also generallynotone wheretheexperimenter
so he wouldagainhaveno incentive
to "burnmoney"toboosthismotivation.
subject'sperformance,
24. Anotherpotentiallimitation
on theuse of lump-sumtransfers
(at leastlargeones) is thatwhenagentsare
ofincome,andcan thusactually
reducestheirmarginal
risk-averse,
utility
lump-sum
payment
givingthema substantial
themto work.
makeithardertomotivate

BENABOU & TIROLE
503
school (Hull (1943), Skinner(1953)) would

viewpoint,along the lines of the behaviourist
shunthe innerprocessand posit a directlinkfromstimulusto response.The agentwould
aversivereactionto beingoffereda contingent
thenjust be assumedto exhibitan instinctive,
witha punishment.
Not surprisingly,
we arenotinclinedto adoptsucha
reward,or threatened
"reducedform"approach.Whileindividualsdo notreallycomputeperfect
Bayesianequilibria
wheninterpreting
thereis a lot of evidencethattheyarequite
signalsfromtheirenvironment,
at (and definitely
intenton) getting
to themotivesbehindthewordsanddeedsof
sophisticated
thepeoplewithwhomtheyinteract.25
Moreover,in thepresentcontexttheinformation-based
benefits.First,it helps understand
whythe responseto the
approachdeliverstwo important
as to whenrewardsmayindeed
stimulusis whatit is. Second,it generatestestablepredictions
haverealcosts,andwhenthisviewis likelytobe a myth.
betweena privately
informed
a class ofinteractions
Thus,we haveidentified
principaland
offered
to inferhermotivesfromthetypeof contracts
to him,thathave
an agentwho attempts
thefollowing
implications:
* Rewardsimpactintrinsic
motivation.
Whereasundersymmetric
information
theintrinsic
can be cleanlyseparated,underasymmetric
(0 V - c) and extrinsic(Ob) motivations
theintrinsic
information
motivation
theycannot.Whentheagentis unsureabouthisability,
0 (a, b) V - c decreaseswiththelevelofthebonus.Similarly,
whenhe does notknowhow
of it, ((aO,
b), is affected
costlyor excitingthetaskis, his perception
by thelevelof the
wageorreward.
* A rewardis a positivereinforcer
in theshortterm,butalwaysdecreasesfuture
motivation.
Theseconclusions,
as wellas theunderlying
arewellinlinewithan important
mechanisms,
literature.
references
on thehiddencostsof
branchofthesocialpsychology
Indeed,thestandard
rewards(Lepperetal. (1973), Deci (1975), Deci andRyan(1985)) arebased on self-perception
reassessthereasonsfortheir
and attribution
theories,
constantly
accordingto whichindividuals
Bothapproachesemphasizetheinformational
As Deci
andothers'behaviour.
impactofrewards.
(1975,p. 42) argues:
hastwoaspects,
a controlling
feedback)
Everyreward
(including
aspectandaninformawith
tionalaspectwhich
therecipient
information
abouthiscompetence
andselfprovides
determination.
Both views also stressthe re-engagement
effectsof rewards.Thus Schwartz(1990),
on
et
al.
(1973),
argues:
commenting Lepper
hastwoeffects.
itgainscontrol
Reinforcement
of[an]activity,
First,
predictably
increasing
itsfrequency.
... whenreinforcement
is laterwithdrawn,
Second,
peopleengagein the
evenlessthanthey
didbefore
reinforcement
wasintroduced.
activity
andlong-term
Thetensionbetweentheshort-term
effects
onmotivation
ofoffering
a reward
idea: oncea rewardis offered,
itwillbe required-and"expected"also suggeststhefollowing
In other
amounts.26
everytimethetaskhas to be performed
again-perhapsevenin increasing
their
effect
on
rewards
have
a
"ratchet
Thisirreversibilwords,through
self-confidence,
effect".
to offerthem,evenon occasionswherethey
itymayexplainpeople's (e.g. parent's)reluctance
25. With,naturally,
some variationsin the population.For example,adultsusuallyhave moreexperiencein
socialsignalsthanchildren,
andthelatterthemselves
exhibitdifferent
interpreting
speedsoflearningtheseskills.
26. The sametask,orrelatedtasks:see Frey,Fehrand Benz (2000) forexperimental
evidenceshowingthatthe
outofmotivation
crowding
mayextendbeyondtheareaofintervention.

504
wouldseemlikea smallpriceto payto getthecurrent

job done.Souvorov(2003) analysesthis
a
extension
the
an additionaleffectarises,namely
of
model;
questionusing two-period
present
thattheagentnowhas a strategic
toappeardemotivated
incentive
(havinga lowa), in ordertobe
in
three
a
bonus
the
future.
Souvorov
establishes
First,in
monotonicity
given higher
properties.
a (weakly)higherbonus,meaningthatPropositions
eachperioda low typeis offered
1-3 holdin
a dynamiccontextas well.Second,fora giventype,thebonusis (weakly)increasing
overtime,
earlier
for
each
the
initial
bonus
is
lower
our
whenthe
giventype,
conjecture.
Finally,
validating
if
are
same
in
both
than
there
two
different
the
reason
is
the
is that
principal
periods
principals;
are
a long-lasting
internalizes
the
fact
that
rewards
habit-forming.
principal
withEtzioni's(1971) claim thatworkersfindcontrolof
Our resultsare also consistent
withKohn's(1993) argument
and "dehumanizing",
theirbehaviourvia incentives
"alienating"
and withDeci and
abouttheirbehaviour,
thatincentiveschemesmakepeopleless enthusiastic
rewards
the
locus
of
to
view
that
from
internal
1985
external,
causality
Ryan's
change
making
and
rather
than
alienated
reactive
bored,
proactive.
employees
(b) Promisedvs.ex postrewards
betweenwhatwe wouldlabel "promised"
Ouranalysiscan also helpclarifythedifference
or"expost"rewards.Ourmodelis aboutthe
and"discretionary"
or"exante"contingent
rewards,
rewards:theprincipalselectsa rewardfora well-defined
effort
or
controlofbehaviourthrough
then
the
decision.
The
reward
scheme
the
before agent's
agent
rationally
interprets
performance
orofa boringtask.
as a signalofdistrust
rewardsthatare discretionary
(notcontracted
for)maywellboosttheagent's
By contrast,
becauseof a different
self-esteem
or intrinsic
motivation,
learningeffect:theworkeror child
thathe is talented),
learnsfromtherewardthatthetaskwas considereddifficult
(and therefore
or parentis appreciative
or thatthesupervisor
of,proudof,or caresabouthis performanceand therefore
thatit is worthrepeatingit. Givingex post a bicycleto a hard-working
child,
will notlead him
to a productive
assistantprofessor
or a specialpay riseor earlypromotion
because theprincipalwas underno obligation(no
to inferthathis behaviourwas controlled,
Andreceiving
therewardis goodnews,because
to
reward
outcome.
commitment)
anyparticular
hisperformance.
The rewardthenprovidesthe
theagentinitially
didnotknowhowto interpret
of
measure
indirect
his
with
an
agent
performance.27
intrinsic
motivation
undermine
motivation?
(c) Whendoes extrinsic
The nextpointis alludedtoin Deci (1975,p. 41):
hisintrinsic
ofcompetence
andself-determination
areenhanced,
If a person's
feelings
Ifhisfeelings
ofcompetence
andself-determination
arediminwillincrease.
motivation
thatsomerewards
or
motivation
willdecrease....Wearesuggesting
ished,hisintrinsic
thisprocess
willdecrease
intrinsic
motivation
andothers
feedback
willincrease
it,
through
inperceived
orthrough
thechange
locusofcausality
thisprocess
either
process.
through
extensionof ourmodelwhere,at theend of each period,agentand principal
27. Consideran infinite-horizon
bothobservewhethertheagent'seffort
was successful(whichhappenswitha knownprobability
08 1), butonly
be reapedfromthissuccessare highorlow (i.e.
thelong-run
theprincipalknowswhether
payoffsthatwillultimately
(W, V) e {(WH, VH), (WL, VL)}, withWH > WL and VH > VL; thispositivecorrelation
may,butneednot,reflect
One can thinkof a parentand a childwhoserealpayoffsto successon examsortestwillcome muchlater
altruism).
in life,in theformof a bettercareer.Thereis thena natural(Bayesianperfect)reputational
wherethe
equilibrium
agents(hencerewardsare good news);conversely,
principalgivesa rewardb* in case of successonlyto high-payoff
The rewardb* is determined
theagentworksonlyifall previoussuccesseswererewarded.
bytheprincipal'sincentive
condition,
namelyb* = 6(WL - b*)/(l - 3) < 8(WH - b*)/(l - 8), where6 denotesherdiscountrate.
compatibility
behaviour
is optimalprovidedVL < c < VH + b.
The agent'shypothesized

BENABOU & TIROLE
505
forrewardsto have
Our economicanalysisindeedunveilsimportant
necessaryconditions
The firstis thattheprincipalhas information
aboutthe
a negativeimpacton self-confidence.
the
does
not.
This
existence
of
hidden
costs
the
that
or
task
the
mayexplainwhy
agent
agent
in educationalsettingsthanin theworkplace.Childrenhave
of rewardsis less controversial
in thequicklychanging
knowledgeof theirselvesand of theiraptitudes
imperfect
particularly
social
taskswhichtheyfaceas theygrowup (curriculum,
interactions,
etc.).In contrast,
sports,
thestructure
of rewardsin theworkplaceis oftenmoreanonymous:in mostsectors,it is the
Thetermsofthis(contingent)
still
withthesame"job description".
contract
sameforall workers
reflect
information
aboutthenatureofthejob, butmuchofitmayalreadybe publiclyknown.
The secondkeyconditionis thesortingcondition:forrewardsto signala low abilityor a
to offerperformance
moretempted
boringtask,it mustbe thattheprincipalis comparatively
the
case
of
a managerwho is
consider
incentivesunderthose circumstances.
Conversely,
of
new
or
and
the
a
from
a
job
given leadership
project division,together
fixed-salary
promoted
scheme.In thisexample(whichis relatedto Section3.1 below),
witha pay-for-performance
thecontingent
rewardis associatedwitha
thesorting
condition
worksin theoppositedirection:
a
from
demonstrated
andshould
of
trust
the
level
effect,
high
by large"empowerment"
principal,
therefore
boostthemanager'sself-confidence.
worksintheoppositedirection,
andrewards
condition
Another
exampleinwhichthesorting
task
is
and
is
when
a
to
is
arelong-term
reinforcers,
subject learningbydoing
learning
positive
a reward,
theprincipalis thenreallysaying:"I
fora talentedagent.By offering
moreeffective
knowthatyouaretalented.
Encouraging
youto trywouldmakeno senseifyouwereunableto
toboosttheagent's
condition
is neededinorderfortheprincipal
learnbydoing".Thatthesorting
the
use
ofcompliments
the
standard
observations
that
to
is also demonstrated
self-confidence
by
a
that
often
have
hard
time
their
oneself
with
a
backfire,
parents
motivating
ingratiate
personmay
fromeducation(V),
children
toworkatschoolbytellingthemabouttheirability(0), therewards
ulterior
oftenattribute
motivation
andthepleasureoflearning
(c); andthatdepressedindividuals
them.28
to thosewhotryandcomfort
aboutthenegativeimpactof rewards,one shouldfirstcheck
To sumup, beforeworrying
aboutthetaskor theagent'stalent(including
thattherewardprovider
has privateinformation
to
the
as we havenoted,a greater
ability interpret agent'strackrecord).One shouldthen,as the
motivation
think
the
and how herpayofffromgivinga
does,
agent
through provider'sulterior
her
is
affected
reward
knowledge.
by
contingent
and self-perception
(d) Retrospective
justification
c obviouslyappliesto
aboutthetask'sdifficulty
thatheldforinferences
The samereasoning
thisresulthas an
theagent'spayoffV fromsucceedingin it.Combinedwithimperfect
memory,
where
information
available
for
situations
currently
providesonlyinsuffiinteresting
implication
some
later
fora certaincourseofaction.29
at
cientjustification
date,theagentagain
Supposethat,
thesameora similartask;andthat,comethattime,he
facesthechoiceofwhether
to undertake
thatwerethenoffered,
incentives
remembers
onlythathe choseto engageinit,andtheextrinsic
For example,teachers
to assess in thislighttheevidenceon theroleof expectations.
28. It wouldbe interesting
abouttheirstudents
lead tochangesin theperformances
ofthestudents
which
withinitially
over-optimistic
expectations
tendtoconfirm
theexpectations
(RosenthalandJacobson(1968); see alsoMerton(1948) fora discussionofself-fulfilling
is unaffected
thatwhilethestudents'behaviourchanges,theirself-confidence
(Darley
prophecies).It seems,however,
andFazio, 1980).
selectivememoryor awareness.The present
29. See B6nabouand Tirole(2002a) fora modelof endogenously
be imperfect,
requiresonlythatmemory
especiallywithregardto one's pastfeelingsand emotions(hedonic
argument
recallmakeretrospective
abouttheirownpreferences
inferences
Fora framework
whereagentswithimperfect
payoffs).
fromtheirpastchoices,see B6nabouandTirole(2002b).

506
inthetask(andthelaterobservation
ofV). Forinstance,
interest
anindividual
butnothisintrinsic
in
a
a
a
a
theorem,
book,
running marathon-may,
long-term
project-writing
proving
engaged
theintellectual
and ego-gratification
benefits
which
at times,be seizedby doubtas to whether
the
is likelyto bringwill,ultimately,
efforts.
successfulcompletion
justify required
("Whyam
I doingthis?")He maythenreflect
thatsincehe choseto embarkon thisprojectonce againin
thepersonalsatisfaction
andcareerincentives,
enjoyedfrompreviouscomspiteoflow financial
later
and
somewhat
at
this
stressful
which,
stage,he cannotquiterecall)
perhaps
pletions(and
Hence it is worthpersevering
on thechosenpath.The resultthat
musthave been significant.
forthiskindofexpost
E[V I a, b] > E[V I b'] forb < b' can thusprovidea formalexplanation
andCarlsmith
rationalization
ofone's ownchoices(Festinger
Bem
(1959),
(1967), Staw(1977)).
towardsa time-inconsistent
altruism
(e) Paternalism:
agent
is relevantariseswhen
Anotherinteresting
class of situationsforwhichour framework
a divergence
between
an agent(childor adult)has time-inconsistent
generating
preferences,
As a resultof this"salienceof thepresent",
he mayfor
interests.
his own short-and long-run
or professional
instanceshirkon homework
duties,failto stickto a necessarydietor exercise
to
or
remain
addicted
tobacco,
drugsor alcohol.A wellintentioned
principal-parent
regimen,
orclosefriend-whotakesthelongrunviewoftheagent'swelfarewillthenhavetheexactsame
theagent'sperceptions
of himselfand of the
as thosewe analysehereto manipulate
incentives
taskshe faces-"forhis owngood".30
3. OTHER CONFIDENCE-ENHANCEMENT STRATEGIES
and motivation
3.1. Empowerment
of
Section2 showedthattheprincipalmaysignaltheagent'sability(high0), theattractiveness
incentive
theuse of a low-powered
thetask(low c) or its long-term
payoff(highV) through
to induce
we nowinvestigate
theuse of delegation
or empowerment
scheme.In thesamespirit,
theprincipal
an agentto carryout the objectivesof theprincipal(Miles, 1965). Intuitively,
in theagent'sability(or,moregenerally,
his intrinsic
herconfidence
demonstrates
motivation)
controlofthetaskto him.This,in turn,makesitmorelikelythattheagentexerts
bydelegating
The delegation
vs. supervision
becauseitprovidesan example
effort.
problemis also interesting
in contrast
workin oppositedirections,
to theprevious
and trusteffects
wheretheprofitability
each other.31
sectionwheretheyreinforced
thatwereourearlierfocus(a = b = 0).32
We shallabstract
herefromtheexplicitrewards
Let Wi (0) and Wo(O) denotetheprincipal'sexpectedpayoffwhenshe delegates(d = 1) and
The principal
does notdelegate(d = 0) to an agentwithability0, and theagentexertseffort.
30. Formally,
W in thiscase is equal to V/P, wheref < 1 is theagent'squasi-hyperbolic
discountfactor;1/pf
costc fortheagent,atthetimewhenhe mustincurit.
measuresthesalienceoftheeffort
effectstudiedin Aghionand Tirole(1997). There,an
31. The analysisgivenhereis notbased on theinitiative
aboutpotentialprojectsif he knowsthattheprincipalwill not
agentinvestsmorein theacquisitionof information
In Dessein(2002),theprincipaldelegatesso as to ensurethatthedecisiontaken
interfere
toomuchwithhissuggestions.
it strategically
and theprincipaldecides.
theagent'sinformation
thanwhenthelattercommunicates
willbetterreflect
of theirobjectives.Salancik(1977) proposesyet
to theagent,theprincipalsignalsa greater
congruence
By delegating
of personalsatisfaction",
relatedto ourearlierdiscussionof retrospective
anotherviewpoint,
namelythe"co-optation
forhimto
youcreatea situationthatmakesitmoredifficult
"Byhavinga personchooseto do something,
justification:
yougivehimtomakethedecision,themore
saythathe didn'twanttodo it.Andtheironicthingis thatthemorefreedom
situation."
constraining
youmakehissubsequent
withlumpsumor fixedwage payments
32. In footnote35, we will sketchhow theresultsextendto contracts
fromcontingent
a : 0. We shallcontinueto abstract
rewards,
however,as thesewerethemainfocusof theprevious
thefactthatperformance
is notpubliclyverifiable.
b = 0 couldreflect,
forinstance,
section.The constraint

BENABOU & TIROLE
507
receives0 iftheagentdoes nottry.As shownbelow,thesereducedformscan be derivedfroma

situation
wheretheprincipaldecidesto eitherrelinquish
somecontrolrightsto theagent,orput
in place a supervisor
or monitoring
As
we assumethattheprincipalknows
earlier,
technology.
ofsuccess0, whilethelatterreceivesa signala drawnfroma cumulative
theagent'sprobability
theMLRP.The agent'sutility
distribution
is, as usual,
G(a 0) , withdensity
g(a I 0) satisfying
if
<
for
he
exerts
and
d
otherwise.
We
that
0
assume
E
(0,
effort,
Cd
1}
cl
co: ceteris
0V
The
the
is
as
follows.
At
the
1,
paribus, agentprefers
delegation. timing
stage
principalselects
to undertake
d {0, 1}. At stage2, theagentdecideswhether
thetask;theprincipal'spayoffis
Wld(0) ifhe does,and0 otherwise.
1. Forall 0 e [0, 1],
Assumption
W1(0)
W1(1)
d Wi (0)
0;
moreover,
S(0)>
< 1 <W(
Wo
(0)
dO
WOM(1)
,)Wo0(0)
In words,an empoweredagentis less likelyto createdamageto theprincipalwhenhe
is talentedthanwhenhe is not.Furthermore,
theprincipaldoes notwant(ceterisparibus)to
=
an
and
to delegatethetasktoa verytalented
the
task
to
one
delegate
ineptagent(0 0),
prefers
=
that
a
0*
in
This
there
exists
such
under
it
that,
information,is
(0 1).
(0, 1)
implies
symmetric
if0 < 0*.
efficient
to delegateif0 > 0*, andto monitor
* Example:Supposethattheagent,whenpayinga costCl = co = c, comesup witha project.
The project,in itsinitialform,will succeediftheagentis "good",andfailifhe is "bad".

knowstheprobability
Theprincipal
0 thattheagentis good.Iftheprojectis unmodified
by
theagentreceivesnewjob offers,
theprincipalandis successful,
withvalue V to him;he
iftheprojectfails,is modified,
receivesno suchoffer
orifhe doesnoteventry.Successalso
W
to
the
a
thecontrol
yields monetary
payoff
principal.
"Delegation"meanstransferring
who
will
then
his
to
the
in
without
modification,
right
agent,
implement project
resulting
0
V
for
himself
and
for
the
if
W
0
the
does
c
8
(bothget
expectedpayoffs
principal
agent
nottry).Alternatively,
theprincipal
maykeepthecontrol
rightsandpaya fixedmonitoring
cost C to supervisetheagent'sproject.This enablesherto discoveralongtheway (and
if it is headedforfailure,and to thenmodifyit so as to makeit
withsomeprobability)
successful.
We assumethattheprincipal
is able,withprobability
x, toturna failingproject
intoa successfulone,wherex W > C. Payoffs
arethenstill0 V - c fortheagent(he gets
no creditfora projectmodified
but
bytheprincipalsinceitwouldhavefailedotherwise),
now(0 + (1 - O)x)W - C fortheprincipal.
Thus
Wd = [0 + (1 - 0)x(1 - d)]W - C(1 - d)
1 is satisfied,
ford E {0, 11,andtherefore
since
Assumption
1
W1(0)
Wo(0)
1 - x + X-C/W
1 corresponds
to whatwe termeda profitability
whichherepushesthe
effect,
Assumption
on theother
principaltowardsgivinggreaterautonomyto moreable agents.The trusteffect,
hand,worksin the oppositedirection:whena is highlycorrelatedwith0, theprincipalis
of low-ability
thebad signals
veryconcernedaboutboostingthemotivation
agents(offsetting
whichtheyare likelyto receive).Thus,if delegationis thought
to be reservedforhigh-ability
agents,she maywantto in factgiveit to someverylow abilityindividualsas well.Moreover,
whencl < co delegationalso involvesan implicit"reward",in thatit makesthetaskmore

508
thelooking-glass-self
will operate,and
Of course,in equilibrium
pleasantto perform.
principle
will
infer
in
the
motivations
ornotdelegating
agents (on average)correctly
principal's
delegating
to them(e.g. rewardsare bad news,as we showedearlier).Due to theconflictbetweenthe
and trusteffects,
to makethe
however,Assumption1 is generallynotsufficient
profitability
eventhoughits effecton theagent'seffort
informational
contentof delegationunambiguous,
willbe unequivocal.Thisadditionalresultwillrequirea secondassumption:
2. For all (ao, Oar)withao > at, theelasticity
of theoddsratio(1 - G(caoI
Assumption
to
than
that
with
is
less
of
respect 0
W1,(0)/Wo(0).
0))/(1 G(al I 0))
This limited-informativeness
condition
imposesan upperboundon thetrusteffectarising
fromthecorrelation
betweenthesignals0 and c receivedby theprincipaland theagent.33It
effectdominates
in theagent'sinference
problem.
impliesthattheprofitability
underAssumption
1:
Proposition5. In equilibrium,
thattheagentwillexerteffort
(i) Empowerment
(no matter
alwaysincreasestheprobability
whathistype0 is).
thanundersymmetric
thereexistsa 0** < 0*
(ii) Thereis moreempowerment
information:
0 > 0**.
suchthattheprincipaldelegateswhenever
2 holdsas well.Empowerment
is thenalwaysgood newsforthe
(iii) SupposethatAssumption
changeshis attitudetowardsthetask:forany
agentabout his ability,and permanently
signala, E[O I a, d = 1] > E[O I a, d = 0].
Proof See theAppendix.
II
5 anditspremisesareconsistent
withPfeffer's
that:
(1994) observation
Proposition
tocloseexternal
orsurveillance,
Whenemployees
aresubjected
monitoring
they
maydraw
inference
thattheyarenottrusted
thepsychological
andthusnottrustworthy,
actingin
thisperception.34
waysthatreinforce
herefromtheuse of fixedpaymentsby the
thatwhilewe have abstracted
Note,finally,
principalto signalher trustin the agent("burningmoney"),the main insightsand results
5 are,once again,robustto allowingforlump-sum
transfers.35
conveyedbyProposition
3.2. Help
Still assumingthatthe agentis unsureabouthis ability,supposethattheprincipaloffersto
contribute
a level of help h (at privatecost h) in case the agentdecides to undertake
the
distribution
33. For example,withtheconditional
2
G(a I 0) = 1 - e(~ )/(9+k) fora
[0, 1], Assumption
amountstoimposinga lowerboundon k.
34. Citedin BaronandKreps(1999), whoprovidean illustration
atHewlett-Packard.
35. Suppose thatthereare two types,OH and OL, with frequenciesfH and fL respectively,
such that
is non-verifiable,
so thecontract
W1(OL)/WO(OL)< 1 < W1(OH)/WO(OH)andOHV - c > 0 > OLV - c. Performance
can onlyspecifya fixedpayment
a > 0. If fH is highenoughthat(fHOH + fLOL)V - c > 0, thenfa = 0, d = 1} conin whichtheagentexertseffort.
Sincebothtypesofprincipal
stitutes
a poolingequilibrium,
thenreceivetheirmaximum
no intuitive-criterion
couldupsetthisequilibrium
(we believethatitis in facttheonly
typeofreasoning
possiblepayoff,
inthiscase). When(fH OH+ fLOL)V - c < 0, on theotherhand,theCho-Krepsrobust
Cho-Krepsrobustequilibrium
willinvolveseparation
orsemi-separation
via moneyburning,
equilibrium
providedthatW1(OL) < W1(OH),so thatone
can findan aH > 0 = aL suchthatW1(OL) - aH< W1(OH)- aH.

BENABOU & TIROLE
509
of success,whichis thusa functionP (0, h) with

task.This help improvesthe probability
>
>
0
and
0.
The
then
undertakes
the projectif and onlyif ar >
Ph
agent
*(h),
Po
whereE[P(0, h) I a*(h), h]V = c, and a*(h) is a decreasingfunction.
the
rewards,
Ignoring
is
principal'spayoff
Up = [1 - G(a*(h) I 0)][P(0, h)W - h].
(11)
The termin thesecondbracketis herexpectedpayoff
conditional
on theagent'sundertaking
the
task.Let us assumethatthepercentage
increasein thatpayoff
achievedbya higherlevelofhelp
on investing
in help)is smallerwhentheagentis talented
thanwhen
(theexpectedrateofreturn
he is untalented:
3. Forall 0 andh,a2 ln(P(0, h)W - h)/08Oh< 0.
Assumption
In otherwords,helpmakesmoreofa difference
forweakagentsthanforstrong
ones.36We
2 earlier.
shallalso use a limited-informativeness
similartoAssumption
condition,
4. For all (ao, rl) withal > ao and (ho,hi) withhi > ho, theelasticity
Assumption
of the odds ratio(1 - G(ao I 0))/(l | 0)) withrespectto 0 is less thanthatof
G(al
-
(P(o,hi)W hl)/(P(0,ho)W ho).
5, one easilyshows:
Followingthestepsin theproofofProposition
Proposition6. In equilibrium:
thattheagent
3, givingmorehelpalwaysdecreasestheprobability
(i) UnderAssumption
a*
is
exertseffort
action
threshold
in
(his
(h) increasing h).
4 also holds,a highlevel of help is always bad newsfor theagent,
(ii) WhenAssumption
hisself-confidence
withrespecttohisability
weakening
permanently
forthetask.
6 mayexplainwhyhelp,likerewardsorlack ofdelegation,
can be detrimental
Proposition
to self-confidence.
For example,depression,a recognizeddisorderof self-esteem
(Bibring
with"dependent"
commonamongindividuals
is,
(1953)), is relatively
personality
patterns-that
individuals
withbackgrounds
characterized
and overprotection
by pampering
(Snyder,Higgins
andStucky,1983,p. 233). Similarly,
Gilbertand Silvera(1996) observethata parentwhofinds
child
of
his
or
her
assistance.
dependence
gratifying
mayprovideunnecessary
A sortingconditionlike the one assumed above seems quite appropriate
when task
is
nature:
of
a
school
or
an
a job or
zero-one
performance
graduating
high
passing exam,getting
In
the
etc.
other
situations
condition
so
that
be
keepingit,
sorting
may reversed,
receiving
helpis
a positivesignal.Thisis likelyto occurwhentheprincipal'spayoffin case ofsuccessriseswith
theagents'ability,
or withthelevelofhelpwhichwas provided(a morehelpingprincipalgets
more"credit").37
suchas joininga start-up
orcontributing
One can thinkofsituations
time
firm,
andmoneyto a politicalpartyorcandidate.Thetwotypesofsorting
conditions
canbe illustrated
betweenthecase of a professor
writea termpaperor getting
by thecontrast
helpinga student
hisorherthesisdone(theprofessor's
is largelyindependent
ofthemargin
ofsuccesswith
payoff
whichthestudentpasses thehurdle),and thatwherethesame professor
coauthorsa research
effect:since -(aUp/ah)/(aUp/ie) = -e( ln(PW - h)/lh), Assumption
36. This is againa profitability
3
condition.
impliesthestandard
sorting
37. Formally,
replacingW by W(0) or W(h) intheexpectedpayoffP(0, h)W - h (withW' > 0) tendstoreverse
a complementarity
thesorting
between0 andh.
condition,
bygenerating

510
or witha youngerfacultymember(helpingis thenmoreattractive,

the
paperwiththestudent
forthepaper'ssuccessdue tothecoauthor'stalent).
better
theprospects
3.3. Coaching
The use of encouragement,
to minimizetheeffectof failuresand thelike,is a
praise,strategies
centralthemein humanresourcemanagement
and education.38
Successfulcoachesareviewed
as thosewhobuildup others'confidence
(Kinlaw,1997).
(a) Encouragement
Theusualcomplementarity
betweeneffort
andtalentmakesitclearwhyevena selfish
coach
the
4
self-esteem.
will
nonetheless
(Section
agent's
maygain by buildingup
identify
settings
wherecoachesmayhavethereverseincentives,
andbashagents'egos.) Formally,
theprincipal's
policyp hereis thedisclosure(orabsenceofdisclosure)totheagentofhardprivateinformation
abouthisability.
The releaseofa signalcovarying
with0 boosts(lowers)
positively
(negatively)
theagent'sself-confidence.
and excuses
(b) Praise,criticism
Let us now turnto the coach's ex post assessmentof the agent'sperformance.
This
assessmentexerciseis of course still forwardlooking,in thatit is meantto improvethe
agent'sfuture
performances.
Takingit forgrantedthattheprincipalwantsto boosttheagent's
to
it
is
can nonetheless
reassurance
self-esteem, interesting notethat,in some circumstances,
have ambiguousconsequences.Suppose thattheagentfailed.The principalmay thentryto
convincehimthatthelinkfromtalentand effort
to performance
is ratherrandom("thejury
was incompetent")
thattheagentwas discriminated
or,relatedly,
against(e.g.racialprejudiceby
or
bias
suchexcusesmaysometimes
educators,
employers
methodological byreferees).
Offering
if
the
noise
the
is recurrent
Indeed,
proveself-defeating.39
affecting pastperformance
(e.g. the
in
if
is
to
be
discriminated
the
future
he
has
been
in
then
the
the
excuse
again
agent likely
past),
than
him.
rather
To
illustrate
this
that
there
are
two
idea,
maydiscourage
encourage
suppose
=
t
2.
in
is
The
t
periods, 1,
agent'spayoff period
(etOV - ct)et,
(12)
whereet E {0, 1) is the date-teffort,

and et e {0, 11 is the date-tnoise,whichis serially
correlated:t = Pr(E2= 81) > 1/2.Atdatet,theagent'scurrent
costct ofundertaking
thetask
is drawnfroma randomdistribution
withconditional
is
to
avoid
[0,
oo)
(this
support
just
possible
intheprincipal's
indifferences
disclosuredecision).Finally,
to simplify
we assume
computations
that0 = OH -- 1 withprobability
fH, while0 = OL < 1 withprobability
fL = 1 - fH. The
agent'sexpectedtalentwillbe denotedoe = fHOH + fLOL.
Whentheagentundertakes
thetaskat date 1 (whichhe does whencl is low enough)and
succeeds,thisof courserevealsthatel = 1. Whenhe fails,however,
onlytheprincipallearns
therealizationof e1. More specifically,
assumethatiftheagentfaceda handicap(ei = 0) the
receiveshardevidenceofit,whereasifhe facedno handicapshelearnsnothing.
When
principal
theprincipalhas evidenceof a handicap,shedecideswhether
or notto revealit.For simplicity,
information
thattheprincipalmayhold;in particular,
shehas no
e1 is theonlypiece ofprivate
information
about0.
38. For example,Korman(1970) emphasizesthepositiveroleof one's self-image
in thedetermination
of work
attitude
andeffort,
andarguesthatmanagersshouldattempt
to improve
theemployee'sself-image.
39. See Snyderetal. (1983) fora broaddiscussionofexcuses.

BENABOU & TIROLE
511
At theend of period1, theprincipalseeksto maximizethelikelihoodthattheagentwill

knowsthathe faceda
thedate-2task.Supposethathe has failed,butthattheprincipal
undertake
=
in
occur
The
Will
full
disclosure
equilibrium? agent'sexpectedgrossbenefit
handicap(el 0).
fromundertakingthe date-2 task is (1 - t)Oe if he is informedthat e1 = 0, and J0L if he
disclosureis thusan
receivesno suchinformation
(he theninfersthathis talentis low). Truthful
if
if
and
behaviour
only
equilibrium
1-/A-
<t5o.(13)
-L
an excuse
The principaltradesoffthebenefitof boostingtheagent'sself-esteem
by offering
If
external
exhibit
excuse
itself
demotivate
the
circumstances
risk
that
this
the
may
agent.
against
or
if
in the
self-esteem
is
affected
failure
is
close
to
littleserialcorrelation
(gt
1/2),
badly
by
theprincipalwillwantto
absenceof an excuse(OLis verylow),thenin theuniqueequilibrium,
eitherdoesnot
theprincipal
disclosetheexcuse.Whencondition
(13) does nothold,bycontrast,
a
mixed
or
strategy.40
provideanyexcuse, plays
on thismodelallowus toidentify
thecostsandbenefits
ofpraise
variations
Straightforward
and
criticism
failed
even
was
was
succeeded
even
low")
high").
("you
thoughe
thoughe
("you
butmakeshimdoubthis environment;
criticism
lowersit,
Praisebooststheagent'sself-esteem
andyetmaynotdiscouragehim.Forinstance,
minority
parentswhofeelthattheirchildis being
or
at
are
oftenreluctant
to conveytheseviews
at
themselves
discriminated
work,
school,
against
to
to theirchild,forfearthathe or she wouldlose faithin theschool systemand thereturns
educationalinvestment.
4. UNDERMINING THE OTHER'S EGO
4.1. Possiblerationales
Ourpremiseuntilnowhasbeen-as inmuchofthehumanresourcesandeducationliteraturesof her spouse,child,colleague,
thata persongenerallybenefitsfroma higherself-esteem
or
while
others'
self-confidence
is a pervasive
teammate.
Yet
coauthor,subordinate,
boosting
or
the
achievements
of their
often
criticize
also
of
social
interactions,
downplay
people
aspect
of
a
in
2
and
3
must
be
broader
The
Sections
therefore
relatives.
and
part
study
colleagues
wantsto represstheagent'sego. We firstconsider
in whichtheprincipalsometimes
construct,
one.
thenturnto a moreinteresting
motivations
forsuchbehaviours,
somesimplepotential
(a) Directcompetition
arein directcompetition
A rather
trivialreasonariseswhenthetwoindividuals
(fora job, a
then
hurt
when
the
latter
The
former
is
a
and
so
a
succeeds;
mate, discovery,title,
forth).
directly
in thecontextofourmodel,W is negative.41
(b) Theriskof "coasting"
ourstarting
A basic premisein socialpsychology
(and,consequently,
pointin Section2) is
in
effort
is
to
an
individual's
thatthemarginalpayoff
increasing his ability.In certain
generally
are
substitutes
rather
than
effort
and
situations,
however,
creatingtherisk
complements,
ability
let r - Pr(e1 = 0) and 0 - [r/(r + (1 - r)fL)IOe + [(1 40. More precisely,
r)fL/(r + (1 r)fL)]OL.
- ) > 0/0L, the unique equilibriuminvolvesno disclosure.Withintermediate
If AM/(1
of
degrees correlation,
< t/(1 <
betweendisclosingandnotdisclosing.
itinvolvesa randomization
z) 0e/oL,
O/0L41. See footnote
andothercostlydisincentives.
ofourbasicmodeltopunishments
14 fortheapplication

512
whenfeelingmoreself-confident
thattheagentmayreduceeffort
on hislaurels").This
("resting
whentheagent'sprivatepayofffromperformance
is of a "pass-fail"
case arisesin particular
nature.Forexample,a pupilwhoseonlyambitionis to pass an exammaystudyless ifhe feels
an individualwho aimsat littlemorethankeepinghis spouseand takesher
talented.Similarly,
willnotputmucheffort
intoremaining
forgranted
attractive
toher.42The teacherorparentmay
thenwantto downplaythepupil'sachievements,
and thespousemaytellherpartner
thathe is
notso greatafterall.
In otherexamples,it mayinduce
In theseexamples,a highself-confidence
reduceseffort.
For example,theagentmaydemonstrate
thewrongtypeof effort.
excess initiative,
selecting
a new and riskypaththathe feels will pay offdue to his talent,whiletheprincipalwould
a moreconservative
in whichthe
havepreferred
approach.Thereareprobablymanysituations
a
of
the
as
function
self-confidence
0
is
as
agent's
principal'spayoff
hill-shaped, opposedto
in
as
Section
in
2:
an
increase
the
constantly
increasing posited
agent'sself-esteem
helpsup toa
which
it
hubris
and
becomes
starts
the
hurting principal.
point,beyond
(c) Shadowcostofreputation
A teacheror a managerwho makes verycomplimentary
commentsto everypupil or
lose
As
we
her
when
to
noted,
credibility.
may
already
employee
disclosingsoftinformation
severalagentstheprincipalmustrealizethattheywill see through
herulterior
and
motivation,
fornotexaggerating
believeheronlyifshebuildsa reputation
fromboosting
claims.Refraining
A related
someagents'self-esteem
to theothers.43
mayhelphermakemorecrediblestatements
tradeoff
aboutthe
appearsin Fangand Moscarini(2002), wherea firmhas privateinformation
ofworkers.44
abilityofeach ofa continuum
We nowturnto,andanalysein moredetail,whatis probablythemostcommonreasonfor
another
restraining
person'sego.
4.2. Ego bashingand battlesfordominance
inprivatelifeorin theworkplacearecharacterized
Manycircumstances
bypowerrelationships.
individuals
clash
as
Egos
tryto establishdominanceovereach otheralong some dimension
in suchsituations
is one's relativestanding
in thegroup,
(intellectual,
physical).Whatmatters
rather
thananyabsolutestanding.
the
other's
in
self-confidence
the
relevant
dimension
Shattering
in
one's
the
then
increase
power
may
relationship.
42. A simpleformalization
ofthesetwoexamplesgoes as follows.Supposetheagentaimsatperformance
yoand
Then
y = Qe where0 is talentand e effort.
getsno extrautilityfromy > yo. Considera deterministic
technology
e = yo/O,andso self-confidence
reduceseffort.
43. This can be modelledeitherin a repeated-action
settingor,moresimply,by havingtheprincipalmake
simultaneous
announcements
to a largenumberof agentswho each haveabilityOH or OL, withprobabilities
fH and
to a singleagent(as longas fHOH + fLOL <
fL. Whereastheprincipalcouldnotcrediblyconveyanyinformation
makestruth-telling
an equilibrium
where
c/ V < OH,shewouldalwayswanttoannounceOH),thelaw oflargenumbers
each compliment
has a clearopportunity
cost.(The equilibrium
is supported
by off-the-equilibrium
pathbeliefsthata
fH of agentstobe talentedmustbe babbling.)Becausehigh-ability
principalwhodeclaresmorethana fraction
agents
arethemostproductive,
itis indeedoptimalfortheprincipal
toreservehispraiseforthosetypes.
44. Workers
observeall wagecontracts
so bythe
distributed,
(lump-sum
plusbonus).Abilitiesareindependently
law of largenumbersthefirmmustconveybad newsto someworkersifit is to conveygood newsto others.Whereas
undersymmetric
information
it wouldgivehigherwagesto themoreable,itmaythenchoosenotto differentiate
ifthe
ofgoodones.FangandMoscarinishowthatthisoccursin particular
costsofbad newsexceedsthebenefits
(motivation)
ifmostworkers
abouttheirability.
areoveroptimistic

BENABOU & TIROLE
513
4.2.1. Privatebenefitsfromdominance. Considera pairof individuals,1 and 2, who

mustmakea jointdecision(theysharethe"formalcontrolright"overit). Each comeswithan
idea or project,butonlyone of thesecan be selected.Individuali's idea yields,in expectation,
i's talentandB > 0 is a private
benefit
OiV + B toi andOiV toj, whereOiis individual
accruing
i whenhispointofviewprevails.Theexistenceofa private
toindividual
benefit
is natural,
since
individualsare morelikelyto searchfor(or reveal)ideas thatfavourthem;B couldthusarise
on to
fromthefactthati's favoured
projectis easierforhimto carryout,has positivespillovers
hisotheractivities,
orwillbringhimoutsidecreditforhavinghadtheidea.
that01 is commonknowledge,
Let us assumeforsimplicity
whereas02 can takeeitherone
oftwovalues,OL and0H > 02 , suchthat
OHV + B > 01V > OLV + B
and
01V + B > 2H V.
(14)
about02 thatindividual
2
We considersituations
whereindividual1 mayhavehardinformation
himselfdoes not have,forexamplesome third-party's
feedbackaboutindividual2's earlier
In our terminology,
individual1 can thus be viewed as the principaland
performances.
in termsof a prioricontrolrights.
individual2 as theagent,eventhoughthereis no hierarchy
For simplicity,
we assumethatthe principaleitherhas no information
02, or else
regarding
or concealit.
knowsits truevalue. In thelattercase, she can eitherdisclosetheinformation
theprincipalreceivesa signals e {0, 02},where0 is uncorrelated
with02,and can
Formally,
research
reportr E {0, s} to theagent.To fixideas,supposethattwocoauthorswithdifferent
mustmakemodellingchoices,or decidewhat
styles,tastesor installedbases of contributions
on thepopularity
of individual2's research
to emphasize.Individual1 has privateinformation
She maythen
approach,aboutwhichshemayhaveheardorreadcomments.
agendaorpreferred
disclosethe(goodorbad) newsto individual2, orconcealthemfromhim.
is as follows:
The timing
We ruleoutmonetary
transfers,
againforsimplicity.
Stage 1: The principallearnseithernothingor learns02. In thelattercase, she chooses
ornottodisclosetheinformation.
whether
comeup withoneidea each fora jointundertaking.
Stage2: Bothindividuals
3:
With
1/2 each, one of themis selectedto makea take-it-or-leave-it
Stage
probability
i.e. getsto choosewhichprojectwillbe implemented.
offer,
It is easyto see thatwhentheprincipallearnsthat02 = 0j , shewantsto conveythisbad
dominance:
newstotheagent,becausein doingso sheestablishes
by(14), eveniftheagentgets
of
he
will
then
defer
to
the
whichhe wouldnotdo ifhe
to proposethecourse action
principal,
1
the
other's
weremoreself-confident.
despite
By lowering
ego,individual enjoysrealauthority
2. Similarideas hold whenmonetary
with
individual
overdecisions
formalauthority
sharing
outsideoptions
transfers
betweenthetwoindividualsare feasible,as longas talent-contingent
is
whenthe
enhanced
areavailable;again,thebasicpointis thattheprincipal's
bargaining
power
is
agent'sself-confidencedamaged.
version
tameandefficient
The situation
describedabovemaystillbe viewedas a relatively
of the "battleof the egos", since the principal'sloweringof the agent'sself-confidence
by
transfers
wouldthusnotaffect
that02 = 0L is Pareto-improving
(introducing
monetary
revealing
is brought
to him,individual2 mayfeel
anyone'sdecisionin thiscase). Whenthisinformation
butshouldrecognizethathe is beingsavedfrommakinga costlymistake.
disappointed,
The otherstatein whichtheprincipalis informed
(02 - 02H) can,however,
yielda much
conditional
on
less harmonious
andefficient
outcome.Let 02 denotetheagent'sself-confidence
s e {0, 02H}, whichis hisinformation
setwhentheprincipal
reports
no signal(sinceshealways

514
passes on anybad news).By (14), whentheprincipallearnsthat02 = 02Hshe cannotlose by

information.
It actuallypaysto do so if
concealingthisfavourable
02V + B < 81V,
(15)
as a reportof "no news"will theninducetheagentto submitto herauthority.

The principal
will thuscensorpositivesignalsabouttheagent'sability,
and wouldevenbe willingto spend
resourcesin orderto preventthemfromreachinghim.45In contrastto theearliercase, her
of theagent'sself-confidence
to thelatter,
and
undermining
(by omission)is now detrimental
>
in
a
even
lower
total
result
This
case
well
to
that
of
01).
may
corresponds
surplus(if
0CH
a mediocreand insecuremanager,who abstainsfrompassingon to his subordinates
positive
feedbackabouttheirperformance
fromhigher-ups
or customers,
forfearthattheymaythen
anddiminish
hisabilityto shapedecisions(an extreme
case beinggoing
challengehisauthority
afterhisjob).46
Proposition7. In thegame describedabove, individual1 bashes individual2's ego in
orderto establishdominanceand acquirereal authority.
She does so bothbydisclosingbad
2 and byfeigningignorancewhenlearninggoodnews.
newsto individual
One couldfurther
enrichtheanalysistocaptureescalating"arguments"
byallowingagent2,
in responseto an attackon his ego, to seek costlycounter-evidence,
as well perhapsas
information
thatreflects
on agentl's ability.
negatively
4.2.2. The sequencingof ego bashingand ego boosting. Ego bashingmayalso have
costs fortheprincipal.As shownearlier,the agent'slack of self-confidence
can reducehis
in comingup withgood projectsinitially,
initiative
as well as his motivation
forputting
effort
intothejointendeavour
lateron. Theresulting
tradeoff
hasinteresting
for
situations
implications
wheretheprincipalcan choosethetimingofinformation
revelation.
Supposethat,as shownin
eitherbeforeor aftertheagentsearchesfora project.The
Figure1, shecan releaseinformation
first
learns
either
the
thus
(0); ifshehas information
principal
agent'struetype(02),ornothing
shemaythendiscloseit.Next,theagentdecideswhether
tosearchfora project,
andtheprincipal
learnswhether
shehas one of herown.The agentfindsa viableprojectif andonlyifhe exerts
whichinvolvesa privatecost c. As to theprincipal,
forsimplicity
we assumethatshe
effort,
of
has a relevant
her
own
with
<
1.
The
x
project
exogenousprobability
principal's
uncertainty
abouttheexistenceofa goodprojectis whatmaymakeitcostlyforherto lowertheagent'sego
ofthegameis otherwise
theprincipalhas a secondchance
earlyon. The remainder
unchanged:
ifshehas notdoneso yet,thenbothjointlyselecta project.
to discloseherinformation
To focuson themoreinteresting
we assumethat(14) and(15) are
configurations,
parameter
as wellas
satisfied,
(1 - x)(L V + B) <c < (1 - x)( H2V+ B)+(__ 2HV + B - 81V).
(16)
45. When02 V + B > 01V, therearemultiple

disclosure
buta uniqueequilibrium
behaviours,
equilibrium
payoff
outcome:theagentalwayschooseshis ownproject.The principal'sabilityto concealinformation
is thenirrelevant
in
thestatewhere02 = OH
46. Therearealso otherreasonswhyindividual
2 mayresenthavinghis ego undercut.
First,he maybe suffering
froma generalself-motivation
forlater,moreimportant
tasks)due to time-inconsistent
problem(perhapsmostrelevant
whichresultsin his attaching
abouthis ego (Carrilloand Mariotti(2000),
preferences,
negativevalueto information
overhow to sharethesurplus
Brnabouand Tirole(2002a)). Second,thetwo agentsmaybe involvedin bargaining
createdby theirjointproject,and therevelation
that02 =- 0L mayhurtindividual2's bargaining
positionmorethanit
helpshimbymakingsurethattheefficient
projectis selected.

BENABOU & TIROLE
Principallearns
s E {0, 02}
Principaldiscloses Agentsearchesfor
a projector not.
r1 E {0, s}
Relevance
of principal's
projectrealized.
515
Principaldiscloses Principal
and agent
r2 E {(, s}
pick a
decision
FIGURE1
Timingofsignalsandreports
in (16) statesthatbad newsdestroys

incentives
foreffort:
theprojectof an
The firstinequality
if
a
talent
will
matter
no
knows
he
has
low
the
has
viable
who
alternative,
only
principal
agent
meansthata self-confident
i.e. onlywithprobability
1 - x. The secondinequality,
bycontrast,
agentfindsitoptimalto conceivea projectofhisown.Havingsucha projectmakesa difference
ifeithertheprincipalhas none(probability
1 - x), orif shehas one buttheagentendsup with
thebargaining
x/2).
power(probability
1. Considerstaget = 1 (ex ante)or2 (expost),anddenotebyrt(02) E {0, 02}
Definition
theprincipal'sdisclosureat datet whensheknowstheagent'stype02.We saythattheprincipal:
is (or is payoff-equivalent
to) rt(0OL)
(i) engagesin ego bashingif her strategy
0L and
rt(0) = 0; (ii) engagesin ego boostingif it is (or is payoff-equivalent
to) rt(O/) = 0
if herstrategy
is (or is payoff-equivalent
and rt(02H)= 0H; (iii) concealsherinformation
to)
=
0
for
E
02 {02 OH.
rt(02)
Proposition8. The principalengages in ego bashingex post (providedshe has not
Ex ante,she eitherengagesin ego boosting,or refrains
theinformation).
disclosed
yet
from
Thus,good news tendsto be revealedearlier than bad news; put
disclosinginformation.
overtime.
therelationship
becomesmoreantagonistic
differently,
Proof See theAppendix. II
To illustrate
theseresults,one maythinkof a parentfacedwithhis or herchild'schoice
betweendifferent
aboutthechild's
careers,ordifferent
sports.The parentmayhaveinformation
business.Atthesametime,
activities-e.g.thefamily
abilityorvaluein someofthesealternative
1 - x) thattheparent'spreferred
choicewillturnoutnot
thereis alwaysa chance(probability
to appearbroad-minded
to be suitedto thechildanyway.The parentwill thenat firstattempt
ortastes),orevenactivelyencouragehimtoexplore
thechild'sjudgment
frombelittling
(refrain
the"father-knows-best"
alternatives.
Whencomingclose to a decision,however,
attitude
will
to theactivity
favouredby the
as long as theparentstillhas a crediblealternative
resurface,
child.
is relatedto the searchfora projectand
In theframework
describedby Figure1, effort
comesbeforedecisionmaking.It is thenquitenaturalthattheearlystageoftherelationship
be
biasedtowardego boosting,andthelatestagetowardego bashing.Suppose,on theotherhand,
relatestotheimplementation
ofa projectrather
thantoitsconception.
thattheagent'seffort
With
andtheagent'seffort
thechoiceofprojectcomingfirst
second,it is clearthatthetimingofego
theprincipaltendsto "beatup" on theagentat first,
bashingandego boostingis reversed:
only
lateron (iffeasible),once theprojecthas beenselectedandtheprincipal
to providereassurance
wantstheagenttobe motivated.

516
We have emphasizedhere the obvious cost of ego bashingin termsof demotivation.

aboutindividual
Anothercostmaystemfromindividual2's drawingmorecomplexinferences
aboutindividual
the
but
also
2
cares
not
about
that
1's preferences.
only
project,
Suppose
agent
as well.
over
which
he
has
information
or
love
towards
1's altruism,
him,
incomplete
friendship,
1
and
little
about
individual
backfire.
as
individual
then
be
2,
caring
interpreted
Ego bashingmay
Despitethesecosts,peoplemayoftenbe willingto belittleandcriticizeothersin orderto
avenue
Because thiscan resultin veryinefficient
establishdominance.
outcomes,an interesting
to
limit
the
for
such
forfutureresearchis how individualsand organizations
try
ego
scope
in thisregard.One possible
clashes.Let us, fornow,contentourselveswitha fewthoughts
strategy
suggestedby themodelis to allocateformalcontrolto individual1. An examplemay
be givingdecisionrightsto parentsuntilthe childrenhave reacheda certainage. Another
observedis theacceptancebyindividual2 ofindividual1's dominance
sometimes
arrangement
abouthimself).Individual2's
2 also has privateinformation
individual
because
(presumably
with
1. Another
to
individual
him
avoid
clashes
enable
ego
promising
may
"puppydog" strategy
to
and
of
institutional
structures
is
the
personnel
management
strategies
designed
study
topic
and
a
within
instead
and
clashes
excessive
promote
cooperative
organizations,
rivalry ego
prevent
atmosphere.
interpersonal
5. CONCLUDING REMARKS
and sociologistshave longemphasized
expertsin humanresourcemanagement
Psychologists,
in manysocial and economicinteractions.
In
motivation
the centralrole playedby intrinsic
incentive
schemes
sometimes
to
the
fact
that
have
called
attention
may
explicit
particular,
they
in theirownabilitiesor
backfire,
agents'confidence
especiallyin thelongrun,byundermining
has beenlargelyneglectedby
task.This side of socialpsychology
in thevalueoftherewarded
and
The presentpaperhas shownthatthesephenomenaare oftenquiterational,
economists.47
and
views.
reconcile
the
the
economic
that
a
formal
psychological
analysis helps
provided
The firstone would
researchseem particularly
Several avenuesof further
interesting.
in
selfwiththereverseformof signalling,
combinethelooking-glass
namelyself-presentation,
The secondavenueconcerns
the
totheprincipal.48
whichtheagenttriesto signalhisinformation
inlong-term
andits"management"
ofmotivation
Third,whileourmodel
relationships.
dynamics
or
it
of
the
accommodates
altruism,
love,
friendship
oughtto be extendedto
possibility
already
information
aboutsuchfeelings.As notedearlier,each partywouldthen
allow forasymmetric
notonlyaboutabilitiesandtaskcharacteristics,
subtleinferences
drawfromtheother'sbehaviour
butalso abouthowmuchtheothercaresabouthimorher.Finally,theanalysisshouldbe extended
whereegosloomlargeandclashtoo
aboutworkplaces
togroups.One hearsfrequent
complaints
theinteractions
between
environment.
Moregenerally,
muchto allowa pleasantandcooperative
and
the
confidence-maintenance
self,
looking-glass
self-presentation
strategies,
intrapersonal
as
thesestrategies
are mutuallyreinforcing),
set of questions(e.g. whether
raisea fascinating
of
and
work
related
to
the
educational
wellas issuesofinstitutional
organization
optimal
design
environments.
APPENDIX
in thetwo-type
without
and
behaviour
3 and4. We derivehereequilibrium
case,first
Proofs
ofPropositions
thenwithlump-sumpayments.The agent'sabilitycan be high,OH (probability

fH), or low, OL (probability
fL).
ofFrey(1997) andKreps(1997).
notedexceptions
47. Withthepreviously
on depressionand on excuses,whentheagenttriesto lowertheprincipal's
48. For example,in theliteratures
orto
to acceptthestatedreasonandoffer
thelatter'scourseofactionis oftena choiceofwhether
comfort,
expectations
totheagent,thatimpactshissubsequent
behaviour.
resistit.In so doing,theprincipalrevealsinformation

BENABOU & TIROLE
517
The conditionaldensitiesof his signalare denotedgH(a) and gL(a), and theMLRP simplymeansthatgH/gL is
increasing.
No lump-sum
3)
payment
(Proposition
FromPropositions
Consideran arbitrary
is monotonic:
if BH
1 and 2, theequilibrium
perfectBayesianequilibrium.
are offered
and BL denotethesetsof bonusesthat,in equilibrium,
withpositiveprobability
by a principalof typeOH
and OL respectively
(i.e. one who knowsthattheagenthas abilityOH, or OL) thenforany (b, b') E BH x BL, one
musthaveb < b'. This,in turn,impliesthat:(i) BH c BL, orelse theOLtypecouldprofitably
deviateto someb that
was strictly
less thananyb' in BL, thusleadingtheagentto thinkthathe had highabilitywithprobability
one,and
motivation
whilesavingon incentive
costs;(ii) BH has at mostone element,orelse,since
thereby
(weakly)improving
wouldbe violated;(iii) BL \ BH also has a uniqueelement,
becauseit cannotbe optimalto
BH C BL, monotonicity
offerone bonusthatsignalsOL ifa loweronehas thesameinformational
content
andalso induceseffort.
In summary,
thereareatmosttwoequilibrium
bonuses:a poolingbonusb and(possibly)a higherbonussignalling
herself
hercomplete
typeOL.Thelatteris thennecessarily
equaltob , sincethelow-type
principalcanalwaysguarantee
information
b*, andno bonusthatsignalsOL forsurewillinducetheagentto workifitis less than
payoffby offering
b.
An equilibrium
is thusdefinedby threeparameters:
thepoolingbonusb < b*, theprobability
x* thattypeOL
selectsb, and
fHgH(a*)
H +
fLgL(ar*)x*
(A.1)
OL V=c,
fHgH(a*) + fLgL(a*)x*
fHgH ( r*) + fAgLR(a*)x*
a *, withar*E(0,1) bythefull-support
whichdefinestheagent'scutoff
assumption.
Let us nextshowthatthereexistsa uniqueequilibrium
theNWBR criterion,
and thatit is suchthat
satisfying
a poolingbonusb > 0, withassociatedcutoff
b = 0. Consider,bycontradiction,
a. We willshowthat,foranyb < b,
if a deviationto b elicitsfromtheagenta response,describedby a cutoff5, thatresultsin weaklyhigherprofits
fora
principaloftypeOL,
(A.2)
OL[1 - G(6 I OL)(W - b) > OL[1 - G(a I OL)](W - b),
thenthissame deviationwill be strictly
preferred
by a principalof typeOH. This is obviouswhen (< a, sincea
deviationto b thenyieldshighereffort
by theagent,at a lowercostfortheprincipal(of anytype).Supposenowthat
& > a; we thenhave
W- b
I OL)
1 - G(3 I OH)
-< 1- G(
(A.3)
<
,
W - - 1 - G(a I OL)
1 - G(a I OH)
wherethefirst
obtainsfrom(A.2) andthesecondfollowsfromtheMLRP,sinceOL < OHanda < r. Thus,
inequality
if a deviationto b is profitable
fortypeOL,thena fortioriit is strictly
fortypeOH. Hence,accordingto the
profitable
whentheagentis offered
a b < b (say,b = b - e), he shouldbelievethatit emanatesfromtypeOH.
NWBR criterion,
b > 0 cannotbe partofa poolingequilibrium,
andso itmustbe thatB = {0, b }.
Therefore,
Next,notethatwhen0 = OL theprincipalmustrandomizebetweenb = 0 and b = b : if she onlyplayedb*,
thenb = 0 wouldinducecompliancewithprobability
be preferred
tob*. The equilibrium
is thus
1,andwouldtherefore
describedbytwoparameters:
x* e (0, 1],theprobability
thata principal
0 = OL selectsbonus0 (pools); and
observing
whenhe is offered
a zerobonus.Thesearegivenby
a*, theagent'scutoff
signalforworking
OL(W - bL) = OL[1- GL (o*)]W,
(A.4)
=
the
to
randomize
and
when0 OL,
as
expressing principal's
willingness
equation(A. 1),whichcan be rewritten
x* (c/V-(A\
(A.5)
.(fL=
fH
H - c/V
on thelikelihoodratio,foranyx* > 0 thereexistsa uniquesolutiona* = s(x*) to (A.1), with
By ourassumptions
into(A.4), theprincipal'snetincentive
to offer
bonus0 when0 = OL andtheagentexpectsherto
ra*> 0. Substituting
x* is
randomizewithprobability
=_
gL(a*)
OL[1 - GL (s(x*))]W - OL(W - bL).
(A.6)
Thisfunction
is increasing
in x*, andnegativeatx* = 0+. So eitherithas a uniquezeroon (0, 1), whichthendefines
theprincipal'smixingstrategy;
orelse itis non-positive
on all of(0, 1],inwhichcase theprincipal's
equilibrium
strategy
is x* = 1, meaningthatno bonusis everoffered.
In bothcases theequilibrium
is unique.Note,finally,
thattheagent
worksonlywithprobability
1 - x*GL (s(x*)) when0 = OL.Thus,
1 - GH(s(x*)) when6 = OH, andwithprobability
in eitherstateoftheworld,he worksless thanundersymmetric
information
(wheree = 1 withprobability
one). II

518
B. Lump-sum
4)
(Proposition
payments
In anyseparating
theagentalwaysworks;when0 = OL he thusgetsbonusb* and no lump-sum
equilibrium
payment.
he getswhen0 = OH,letus showthatwhen0 = OL theprincipalmustbe indifferent
Denotingby (a, b) thecontract
betweenoffering
(0, b*) and (a, b). ClearlytheOL-typeprincipalcannotstrictly
prefer(a, b), and weresheto strictly
deviateto (a - e, b), forsmalle > 0. Accordingto NWBR thiswouldstill
prefer(0, b*), theOH-typecouldprofitably
convincetheagentthat0 = OH, sinceforE smallenoughthe0L-typestillprefers
(0, b*) to (a - E, b) evenwhenthe
thelattercontract.
1 afterbeingoffered
Next,as in theproofofProposition
3, itis easyto
agentworkswithprobability
couldofferb - e andtheagentwouldinterpret
this(accordingtoNWBR) as
showthatb = 0: wereb > 0, theprincipal
a suresignthat0 = OH.
if it exists,is thusnecessarilydefinedby thecontracts(0, b*) and (a =
The NWBR separating
equilibrium,
condition
is indeedsatisfied.
thelimited-informativeness
ensuresthattheNWBRcriterion
Indeed,
c-OL V, 0). Moreover,
Ifthisis weakly
supposethattheprincipaldeviatesto a contract
(ai,b), andlet6 definetheagent'sreactiontothisoffer.
fortheOH type,
profitable
OHW - (c - L V),
OH(1 GH(r))(W
)
for
the
then(10) impliesthatitis strictly
_
OL type,
profitable
OL (1 - GL ())(W
- b) - a > OLW - (c - OL V),
toNWBR theagentshouldthen
as longas eitherb > 0 or& > 0; whenb = 6 = 0 bothtypesgain,equally.According
of0 = OL,andshirk,so itcannotbe profitable. |I
anysuchdeviationas indicative
interpret
5
ProofofProposition
thetaskifandonlyifE[0 I a, d]V > cd. Therefore,
Fora givendelegation
there
policyd e {0, 1}, theagentundertakes
ifand onlyifa o r. The principalthenchoosesd e {0, 1} so as to maximize
is a cutoff
crfsuchthathe exertseffort
tht
1:
Then,fromtheMLRP andAssumption
[1 - G(a5
)]1Wd(0).Supposefirst
atr ar.
d
dO
_>
1- G(a
I0)
1 - G(r& 16)
0)
W1(0)
o()
>> 0,
,/J
(A.7)
and so theprincipaldelegatesifandonlyif08 0 forsome6. Thisimpliesthatdelegationis goodnews:E[O I a, 1] >

So itmustbe that
E[O I a, 0] forall a; in particular,
cl = E[O Iao, 1] > E[O I a , 0] = co, a contradiction.
acl < oc,
the
As a result,for
that
worksmoreunderdelegation;hencepart(i) of theproposition.
(for
given
agent
meaning
0)
so theprincipalstrictly
to delegate.By
all 0 > 0* we have [1 - G(oa* I 6)]W1(0) > [1 - G(ao O)]Wo(0),
prefers
I
thisremainstrueon someinterval
does
however,
[9**,0*] with0** < 0*. Thisprovespart(ii). Thisproperty,
continuity,
make0** a cutoff
suchthatdelegationoccursifand onlyif0 > 0**: indeedwitha < ao, thetermin
notnecessarily
in 0 (althoughitcannotbe everywhere
otherwise
the
decreasing,
squarebracketsin (A.7) needno longerbe increasing
2 holds,however,
0, contradicting
(ii)). WhenAssumption
principalwoulddelegateifand onlyif0 was above a cutoff
thatdelegationoccursif and onlyif0 > 0**, where0** < 0*. This,in turn,ensures
(A.7) again applies,implying
andmoregenerally
raisestheagent'sposterior
distribution
abouthis
impliesthatdelegation
part(iii) oftheproposition,
ofhis signalandofthetask'soutcome. I
ability,
independently
8
ProofofProposition
Let us workbybackwardinduction.
(a) Supposethatat
tt = 2 theprincipalknowstheagent'stype,buthas notyetdisclosedit.Let y(OL), y(0) and
thattheagentwillstickto his ownprojectwhen:(a) theprincipalalso has a
denotetheequilibrium
probabilities
y(O2H)
toldr2 =
relevant
project,butitis theagentwhogetsto maketheselection;and (b) theagentwas previously
0L, O or
From(14) and (15), we have
respectively.
02H
(A.8)
y(02L)= 0 y((0I) y(62H)= 1.
<
If y(0) > 0, it is clearlystrictly
optimalfortheprincipalto disclose62 = 2Lexpost.In theabsenceof anynewsthe
The fact
agentwillthusinferthats e {0, oH}, andcondition(15) thenimpliesthaty(O) = 0 afterall, a contradiction.
thaty(0) = 0 < 1 = y(62H),in turn,makesit strictly
optimalfortheprincipalnotto disclosethat62 = 62H,when
she has suchnews.Finally,whentheprincipalknowsthat62 = 2" she is indifferent
betweendisclosingit andsaying

BENABOU & TIROLE
519
inthedefinition
sincey(0L) = y(0) = 0 (thisis whywe allowforpayoff-equivalence
8).
preceding
Proposition
nothing,
assumethatshechoosestorevealthebad news.
We maythus,without
loss ofgenerality,
decision.Let
(b) Let us nowlook at theprincipal'sex antebehaviour(t = 1) and theagent'ssubsequenteffort
thattheagentsearchesfora projectafterhearingreportsrl =
z(02L),z(0) and z(2OH)denotetheprobabilities
L,
and02Hrespectively.
Equation(16) impliesthat
z(2L) = 0 < z(0)
z(02H)= 1.
(A.9)
r (02L) = 0 (ifnot,changeherbehaviour
Eitherz(0) = 0, andthenwe mightas wellassumethattheprincipal
reports
not
to rl (02L)= 0 forsure;thenz(O) = 0 afortiori).Or else z(O) > 0, andthenitis strictly
optimalfortheprincipal
todisclose02Lex ante,giventhatshecan (andwill) do itexpost.
facesa tradeoff
ifz(0) < z(02). Disclosingthegoodnewsraisesincentives
for
Last,when02 = 02Htheprincipal
Itcanbe shownthatdepending
on thevaluesoftheparameters,
theagentintheexpostnegotiation.
butemboldens
effort,
theprincipalmayormaynotdisclose02 - 0H in equilibrium. II
and Social Interactions".
We are
versionof thispaperwas titled"Self-Confidence
Acknowledgements.The first
IsabelleBrocas,Daniel Gilbert,
forhelpfulcommentsand discussionsto PhilippeAghion,MarkArmstrong,
grateful
at theFranqui
RobertLane, MarekPycia,GdrardRoland,JulioRotemberg,
Ilya Segal, AntonSouvorov,participants
at seminarsat HarvardandParis,andatthe
on "TheEconomicsofContracts"
conference
(Brussels,1999),participants
financial
from
referees.
ISNIE 2002 Congress(Boston)andthreeanonymous
Bmnabou
gratefully
acknowledges
support
as wellas thehospitality
oftheInstitute
theNationalScienceFoundation
Foundation,
(SES-0096431)andtheMacArthur
forAdvancedStudyovertheacademicyear2002-2003.
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The Review of Economic Studies, Ltd.

Intrinsic and Extrinsic Motivation

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ReviewofEconomicStudies(2003) 70, 489-520

IDEI (Universitjde ToulouseI), CERASandMIT

Tom said to himselfthatit was notsucha hollowworld,afterall. He had discovereda

Should a childbe rewardedforpassingan exam,or paid to read a book? Whatimpactdo

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REVIEW OF ECONOMIC STUDIES

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

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in the shorttermand that,as

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

1. THE LOOKING-GLASS SELF

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REVIEW OF ECONOMIC STUDIES

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

2. THE HIDDEN COSTS OF REWARDS

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For instance,theindividualmaynotbe awareof futurere-engagement

itcouldbe V, as longas itis uncorrelated

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

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REVIEW OF ECONOMIC STUDIES

Proof Part(i) has alreadybeen established.The proofof part(ii) restson a standard

0[1 - G(cri I ci)][W - bi] > 0[1 - G(aj

12. Thereis in factno pure-strategy

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

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REVIEW OF ECONOMIC STUDIES

2.2.1. No lump-sumpayment. As intheprevioussection,we first

then0 = b* < b3 < W. The agent'sreservation

and it is suchthatb = 0. Theprobability

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

itis stillthecase thata morehigh-powered

20. Wethankan anonymous

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REVIEW OF ECONOMIC STUDIES

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

school (Hull (1943), Skinner(1953)) would

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REVIEW OF ECONOMIC STUDIES

wouldseemlikea smallpriceto payto getthecurrent

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BENABOU & TIROLE

INTRINSIC AND EXTRINSIC MOTIVATION

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