Money and morals

Publish date 06-09-2022

by Pierluigi Conzo

So-called “prosocial behaviors”, such as donations of blood or money, contributions to the public good through taxes, teamwork, money laundering, are important for the good functioning of societies. Despite being quite widespread, such behaviors are hardly "provided" in an amount deemed optimal for society.

If this shortage is caused by insufficient economic incentives, the law of supply in traditional microeconomic theory offers a simple solution: any subsidy, tax break, or monetary reward should stimulate people to engage in prosocial behavior. If, however, "extrinsic" incentives (such as monetary ones) crowd out "intrinsic" prosocial motivations (e.g. linked to ethics and morality that guide certain choices), these rewards can lead, instead, to a reduction prosocial behavior. The economic literature is quite divided regarding the effectiveness of economic incentives in stimulating prosocial behaviors. According to some studies, such incentives would have the perverse effect of stimulating selfish behavior, while, according to others, altruistic choices would be more abundant in the presence of economic rewards.
A recent article published in the scientific journal Nature Human Behavior intervenes in this debate by presenting new data relating to Sweden. The authors analyze the effect of increased monetary rewards on a particular type of prosocial behavior: money laundering. The study is based on a natural experiment, which starts with the decision of the Swedish Central Bank to withdraw the 0.5 SEK (approximately € 0.05) coin from circulation. From 1/10/2010, when the 1 SEK coin became the smallest denomination, recyclable cans with a deposit refund of 0.5 SEK were gradually replaced by cans with a 1 SEK refund (approximately € 0.10 ) per recycled can. Consequently, the recycling revenue per can gradually increased from 0.5 SEK in 2010 to 1 SEK in 2014. This gradual change allowed the authors to estimate the amount of recycling carried out as a function of the increase in the expected reward.

The results, based on a very large sample, are consistent with the aforementioned theories of motivational "displacement". The authors, in fact, demonstrate that the relationship between extrinsic motivations (reward for recycled can) and prosocial behavior ( number of cans recycled) can be described by an S-shaped curve. When the reward increases, the amount of cans recycled first increases to a certain point, called the "inflection point", after which it decreases and the recycling supply curve becomes negatively inclined. This reduction in the amount of recycling continues until it reaches another inflection point, after which the supply curve re-slopes positively, thus giving rise to an S-function, which describes the relationship between monetary incentives and money laundering.

To explain this behavior, the authors propose two theories. The first concerns the image of oneself, whereby prosocial behavior would allow one to signal one's own prosocial motivations to oneself and to others. The reward, according to traditional theories, should always have a positive effect on prosocial behavior, but the latter, if used as a signal to reinforce self-image, can lose "effectiveness" as the reward increases: in this case it will be It is difficult to distinguish whether a prosocial act is the result of ethical motivations or monetary incentives. According to which of the two effects prevails, sign changes can be observed in the relationship between recycling and reward. The other explanation is based on the "moral disengagement" suggested by R. Titmuss: a small monetary incentive would "crowd out" altruistic behaviors because it would not be able to compensate for the time and effort required to implement them. The introduction of an extrinsic reward would trigger a process of cognitive re-evaluation of behavior, attributing less weight to moral and ethical aspects and more weight to extrinsic costs and benefits.

The relationship between monetary reward and intrinsic motivations, , is therefore much more complex than previously postulated by the economic literature. The study suggests that to stimulate prosocial behaviors it is necessary to leverage the right mix between monetary incentives and altruistic motivations, as only one of the two components may, in some contexts, not be sufficient.

Pierluigi Conzo
Photo Franca Fiordalice
NP May 2022

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