A Behavioral Economics Perspective on the Overjustification Effect: Crowding-In and Crowding-Out of Intrinsic Motivation

In the last two decades, economic motivation research has undergone a paradigm shift when it comes to the effect of incentive schemes on individual performance and motivation. Inspired by self-determination theory, a new branch in economics evolved called behavioral economics. Especially by evidencing the negative effect of "pay-for-performance" on intrinsic motivation, called the "crowding-out" or "overjustification" effect, it challenges the economic paradigm of the relative price-effect and ist inherent belief in incentives as universal remedy for motivation and individual performance. This article reviews the findings of behavioral economics on motivation. Drawing on these results we discuss which institutional conditions strengthen rather than weaken intrinsic motivation. We demonstrate that fairness,
participation, market-driven wages, and normatively affected decision-making contexts have a positive effect on intrinsic Motivation.