Where does incentive collide?

A payment scheme written into a contract so that a self-interested agent, whose effort a principal cannot fully observe, chooses to act in the principal's interest: the reward is tied to an observable outcome so that doing the right thing also pays the agent. Holmstrom's 1979 Moral hazard and observability showed formally how tying pay to any signal informative about hidden effort improves the contract, trading risk against the pull of the reward. Here the referent is a designed feature of a contract that steers a rational actor's choice, not a brain's tug toward a cue, an outside reward that can dampen inner interest, or an organisation's misfiring bonus plan.[1]

Unit

A payment rule mapping observed outcomes to an agent's reward

Recovery means

Not applicable

Measured by

Formalised as the pay schedule that maximises a principal's payoff subject to the agent's participation and effort choice

The property of wanting that a dopamine-linked brain system attaches to a cue for a reward, turning a neutral signal into something that grabs attention and pulls behaviour toward it. Berridge and Robinson's 1998 review argued that this wanting is dissociable from liking, the pleasure of the reward itself, so an animal can be driven toward a cue it no longer enjoys. Here the referent is a measurable brain process that motivates approach, not a clause in a contract, a reward handed out to shape motivation, or a bonus scheme in a firm.[2]

Unit

The motivational pull a brain assigns to a specific reward cue

Recovery means

Not applicable

Measured by

Inferred from cue-triggered approach and effort in animals, and probed by manipulating dopamine while separating wanting from liking reactions

An outside reward offered to prompt a behaviour, studied for the surprising way it can undermine the inner interest a person already had in the task. Deci's 1971 experiment, and the later meta-analysis by Deci, Koestner, and Ryan in 1999, found that tangible rewards given for an activity often reduced people's intrinsic motivation to keep doing it once the reward stopped, an effect called overjustification. Here the referent is an external reward examined through its effect on inner drive, not a formal contract term, a brain's pull toward a cue, or a firm-wide pay plan.[3][4]

Unit

An external reward offered for a task, and its later effect on inner interest

Recovery means

Free-choice interest may return once a controlling reward is removed, though often below its starting level

Measured by

Gauged by free-choice time on a task and self-reported interest after a reward is introduced and then withdrawn

A reward system an organisation puts in place to steer employee behaviour, and the frequent gap between the behaviour it pays for and the behaviour it actually wants. Kerr's 1975 On the folly of rewarding A, while hoping for B catalogued cases where firms rewarded easily counted outputs while hoping for goals they never paid for, and so got the counted behaviour instead. Here the referent is a real reward scheme running in an organisation, judged by its unintended effects, not a formally optimal contract, a brain's wanting, or a single external reward in a lab.[5]

Unit

An organisational reward scheme linking measured performance to pay

Recovery means

Not applicable

Measured by

Assessed by comparing the behaviour a scheme rewards against the goals it was meant to serve, and its side effects