Economic Model of Motivational Crowding Out and the Self-Control Problem

Abstract:

Recent economic research has drawn a lot of attention to the problem of dynamically inconsistent preferences, which describes many situations connected with the phenomenon of self-control and willpower. One of the ways to solve the self-control problem is offering a reward in order to stimulate more rational behavior. However, many psychological studies indicate that offering such a reward may undermine long-term self-control motivation in the future, despite a seeming short-term improvement. Motivational crowding-out is mostly observed for external (when a reward is provided by an individual or an organization) in rather than internal rewards (when a person chooses a reward for himself). The author develops an economic model which helps to explain differences in the short-term and long-term effects of internal and external rewards on the self-control motivation. The model is based on the dual-self approach to the dynamic inconsistency and assumes lack of information on the costs of self-control. The model shows that individuals who have a low level of self-control are more prone to motivational crowding out than individuals who have a high level of self-control. The second ones are mostly unaffected by external rewards. These conclusions coincide with the results of empirical studies on self-control and external rewards.