UE857 - Commitment, Nudges and Incentives

Intervenant·e·s

• Miriam Teschl [référent·e]   maîtresse de conférences, EHESS / Aix-Marseille Sciences économiques (AMSE)
• Stéphane Luchini   chargé de recherche, CNRS / Aix-Marseille Sciences économiques (AMSE)

The general idea of the lecture is to spell out what economists usually mean by incentives and to connect it with insights from behavioral economics. The aim is to give students a better understanding about what incentives are and how incentives can shape behavior. The lecture will present theoretical arguments as well as experimental results. We will first distinguish incentives in markets from incentives to do certain sort of things in organizations. Binding incentives in markets play essentially the role of a coordination device, whereas incentives in organizations are key ingredients of contractual arrangements. Contractual arrangements have been studied extensively in the the economic theory of contracts and we will devote a special attention to moral hazard (e.g. when someone takes more risk when insured) and adverse selection (e.g. when someone can hide information about his or her type) in the principal-agent framework. Experiments will be presented to give insights on theoretical concepts. We will also emphasize why experiments have to be set up in such a way that they are "incentive compatible", which means that they have, following Vernon Smith in particular, to fulfill three criteria: non-satiation (more payoff is always better), saliency (payoff differences must be worth it) and dominance (experimental earnings are attractive enough, that is more than opportunity costs). The next topic will be devoted to non-price incentives. There is a growing literature in economics that focuses
on the role of intrinsic motivation instead of any extrinsic motivation such as payoffs and experimental earnings, borrowing insights from cognitive and social psychology. We will present students with key ingredients from psychology and then dwell upon two types of non-price incentives: commitment devices and nudges. The last topic will discuss incentives within the rationality and heuristics framework.