Crowding Out

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Crowding out refers to the phenomena that within peer production projects in particular, and volunteering in general, paying those volunteers actually diminishes their motivation and might destroy the dynamic of peer production projects. It leads to the conclusion that Peer Production are not price-incentivized systems, and that Revenue-Sharing may be counterproductive.

More generally, see our entry on Intrinsic vs. Extrinsic Motivation, extrensic motivation will crowd out intrinsic motivation.

It may also refer to the related issue that giving power to experts may weaken the motivation on non-experts.

See also this very interesting study on Incentives for Participation


From the Wikipedia:

"Motivation crowding theory, in labor economics and social psychology, suggests that extrinsic motivators such as monetary incentives or punishments can undermine (or, under different conditions, strengthen) intrinsic motivation.[1] For example, if the imposition of a fine or other concrete penalty results in an increase of a prohibited behavior, the penalty is said to "crowd out" the intrinsic social disincentive by associating violations with a more psychologically acceptable cost.[2] Tangible incentives crowding out intrinsic motivation is known as the overjustification effect. Similarly, the Yerkes–Dodson law describes physiological or mental arousal first strengthening and then crowding out productivity over short time scales.

The theory contrasts with the relative price effect on which mainstream economics is based.[1] In neoclassical labor microeconomics, when the supply of labor is decided by the worker, such as in volunteer or paid voluntary labor, the amount of work performed is often described by the backward bending supply curve of labour. The curve indicates that while workers will initially chose to work more when paid more per hour, there is a point after which rational workers will choose to work less, as the marginal value of more money is outweighed by the loss of available time. Since the vertical axis only represents extrinsic compensation, the curve does not represent a complete description of voluntary labor." (


"Look at what happened to Mojo Nation - which tried to reward participants in a swarm peer file distribution system with "mojo" convertible into goodies as compare to BitTorrent, which did not. Compare the level of use and success of pay-per-cycle distributed computing sites like Gomez Performance Networks or Capacity Calibration Networks, as compared to the socially engaged platforms like SETI@Home or Folding@Home. It is just too simplistic to think that if you add money, the really good participants will come and do the work as well as, or better than, the parallel social processes." (

Explanation about Crowding-Out in Peer Production

Yochai Benkler [1] on why, under certain conditions, peer production functions better than price incentives, and why the latter may undermine the former:

"The reason is that the power of the major sites comes from combining large-scale contributions from heterogeneous participants, with heterogeneous motivations. Pointing to the 80/20 rule on contributions misses the dynamic that comes from being part of a large community and a recognized leader or major contributors in it, for those at the top, and misses the importance of framing this as a non-priced social process. Adding money alters the overall relationship. It makes some people "professionals," and renders other participants, "suckers." It is not impossible to mix paid and unpaid participants, as we see in free and open source software and even to a very limited extent in Wikipedia. It is just hard, and requires a cultural form that is definitely not "now at long last we can tell who's worth something and pay them, while everyone else is just worthelss." What Calacanis is doing now with his posts about the top contributors to Digg is trying to alter the cultural interpretation of what they are doing: from leaders in an engaged community, to suckers who are being taken for a ride by Ross.Maybe he will succeed in raining on Digg's parade, though I doubt it, but that does not mean that he will succeed in building an alternative sustained social process of peer production, or in replacing peer production with a purely paid service. Once you frame the people who aren't getting paid as poor sods being taken for a ride, for example, the best you can hope for is that some of the "leaders" elsewhere will come and become your low-paid employees (after all, what is $1,000 a month relative to the millions Calacanis would make if his plan in fact succeeds? At that point, the leaders are no longer leaders of a community, and they turn out to be suckers after all, working for pittance, comparatively speaking.)

There is an abiding skepticism, born of many years in the industrial age, about the sustainability and plausibility of nonmarket-based cooperation and productive collaboration. We have now, on the other hand, almost two decades of literature in experimental economics, game theory, anthropology, political science field studies, that shows that cooperation in fact does happen much more often than the standard economics textbooks predict, and that under certain structural conditions non-price-based production is extraordinarily robust. The same literature also suggests that there is crowding-out, or displacement, between monetary and non-monetary motivations as well as between different institutional sytems: social, as opposed to market, as opposed to state. It just is not so easy to assume that because people behave productively in one framework (the social process of peer production that is Wikipedia, free and open source software, or Digg), that you can take the same exact behavior, with the same exact set of people, and harness them to your goals by attaching a price to what previously they were doing in a social process. Anyone interested in the basic approach can look at my articles Coase's Penguin, or Sharing Nicely, which include more of the underlying literature than does the book The Wealth of Networks, although some of the materials are there in chapter 4. The problem is not, in any event, a simple or solved one, and I, among many others, continue to work on it." (

Explanations about Crowding-Out in General


Robert Kozinets:

"I’ve recently had a chance to formulate my contentions with a bit more precision. I saw a terrific presentation in Munich by Florian Jodl, a doctoral student at Ludwig-Maximillian University who is doing his thesis on as topic that looks at the way that giving rewards to customers can actually undermine a company’s relationship with them. (Florian is also working for McKinsey). His basic proposition is that we give consumers a lot of rewards, such as the various kinds of Frequency Programs, in order to inspire their loyalty. But the net effect, according to solid psychological theory, can be just the opposite. I had a “Murray Davis moment.” I thought, “That’s interesting, and that’s really relevant to the stuff I’m trying to say about sponsored communities.”

There is, in fact, a massive amount of research that supports the idea that when you pay people to do something for you, they stop enjoying it, and distrust their own motivations. The mysterious something that goes away, and that “Factor X” even has a name: intrinsic motivation.

Intrinsic motivation is a person’s sense that they are doing something because they want to do it, because the doing brings joy, it is rewarding by itself, on its own as an activity. Extrinsic rewards suggest that there is actually an instrumental relationship at work, that you do the activity in order to get something else, and that something else (like a monthly check) is actually the reward for doing it. We don’t need to be paid to play, because it in itself is fun and enjoyable. If you pay me for it, it must be work.

Some of the classic work in this area, by Mark Lepper at al in 1973 found that if you took kids who loved to paint, and you started rewarding them for painting, they actually started painting less.

Edward Deci in 1975 found that when you took adults who were playing with a puzzle and trying to solve it, and you rewarded them for solving it, they actually started playing less with the puzzle.

The results were replicated in a large number of different laboratory studies and real-world contexts. For example, when you paid kids in a classroom for doing math tasks, they stopped being engaged with the math task (Greene et al 1976). When you paid students to read they stopped being internally motivated to read and only did it when rewarded (Deci, Koestner, and Ryan 2001). When you took adults who were trying to lose weight and you introduced external rewards into the weight loss program, the program stopped working (Kohn 1993). When you paid them for donating blood, they started to refuse (Seabright 2002). There are, literally, ka-jillions of such studies, meta-studies, and meta-analytic mega-studies of the meta-studies.

It’s what we would call a robust effect. It shows up in many contexts. And there’s been considerable testing to try to find out exactly why it works. A major school of thought is that there is an “Overjustification Effect.” (

Empirical evidence of the crowding effect

From the study by Tobias Assman at

"Offering financial rewards for contributions to online communities basically means mixing external and intrinsic motivation. Since that is an issue widely discussed in the academic world, I will present some interesting examples of an effect called crowding occuring in this context.

Circumstantial Evidence

Basic intuition tells us that we are more willing to undertake a task if we can expect a reward. But there are a number of specific situations where the undermining effect of external incentives is also just as easily understood. A good example is children who are paid by their parents for mowing the family lawn. Once they expect to receive money for that task, they are only willing to do it again if they indeed receive monetary compensation. The induced unwillingness to do anything for free may also extend to other household chores. The reward need not be monetary in the first place. Take the case of a gifted child in violin class. Once ‘gold-stars’ were introduced as a symbolic reward for a certain amount of time spent practicing the instrument, the girl lost all interest in trying new, difficult pieces. Instead of aiming at improving her skills, her goal shifted towards spending time playing well-learned, easy pieces in order to receive the award (Deci with Flaste 1995). This crowding effect may also work the other way round. A patient found it difficult taking her medication for hypertension regularly. Her doctor’s frequent reminders, admonishments, or plain warnings concerning the possible dire consequences had no effect. Despite ending up in the emergency room a couple of times, the patient only managed to alter her behavior when a new doctor - instead of pressuring her to take the medication - discussed with her what time of the day she considered best for taking her pills. Suddenly, she managed to follow the prescription, as her own (intrinsic) motivation was recognized and thereby reinforced.

Labor supply

Frey and Götte (1999) use a unique data set from Switzerland to evaluate how financial rewards to volunteers affect their intrinsic motivation. The incidence of rewards is found to reduce the amount of volunteering. While the size of the rewards induces individuals to provide more volunteer work, the mere fact that they receive a payment significantly reduces their work efforts by approximately four hours. The magnitude of these effects is considerable. Evaluated at the median reward paid, volunteers indeed work less, suggesting that the crowdingout effect dominates the relative price effect. These results are immune to possible simultaneity bias or differences in reward policies between types of organizations. These findings have important implications for policy regarding voluntary work. Direct incentives may backfire, leading to less volunteering.


Daycare centers are confronted with the problem that parents sometimes arrive late to pick up their children, which forces teachers to stay after the official closing time. A typical economic approach (in line with the economic theory of crime, initiated by Becker 1968) would suggest introducing a fine for collecting children late. Such a punishment is expected to induce parents to reduce the occurrence of belatedly picking up their children. The effect of such a policy has been studied for a daycare center in Israel (Gneezy and Rustichini 2000). The number of late-coming parents over a particular period of time was first recorded. In a second period, extending over twelve weeks, a significant monetary fine for collecting children late was introduced. After an initial learning phase, the number of late-coming parents increases substantially, which is consistent with the crowding-out effect. The introduction of a monetary fine transforms the relationship between parents and teachers from a non-monetary into a monetary one. As a result, the parents’ intrinsic motivation to keep to the time schedules is reduced or is crowded-out altogether; the feeling now is that the teachers are “paid” for the disamenity of having to stay longer. That parents’ intrinsic motivation was crowded out for good by the introduction of a penalty system is supported by the fact that the number of late-coming parents remained stable at the level prevailing even after the fine was cancelled in the third phase.' (

Theoretical Explanation

From the study by Tobias Assman at

"The effects of external interventions on intrinsic motivation have been attributed to two psychological processes:

(a) Impaired self-determination. When individuals perceive an external intervention to reduce their self-determination, they substitute intrinsic motivation by extrinsic control. Following Rotter (1966), the locus of control shifts from the inside to the outside of the person affected. Individuals who are forced to behave in a specific way by outside intervention, feel overjustified if they maintained their intrinsic motivation.

(b) Impaired self-esteem. When an intervention from outside carries the notion that the actor's motivation is not acknowledged, his or her intrinsic motivation is effectively rejected. The person affected feels that his or her involvement and competence is not appreciated which debases its value. An intrinsically motivated person is taken away the chance to display his or her own interest and involvement in an activity when someone else offers a reward, or commands, to undertake it. As a result of impaired self-esteem, individuals reduce effort.

The two processes identified allow us to derive the psychological conditions under which the crowding-out effect appears:

(1) External interventions crowd-out intrinsic motivation if the individuals affected perceive them to be controlling. In that case, both self-determination and self-esteem suffer, and the individuals react by reducing their intrinsic motivation in the activity controlled.

(2) External interventions crowd-in intrinsic motivation if the individuals concerned perceive it as supportive. In that case, self-esteem is fostered, and individuals feel that they are given more freedom to act, thus enlarging self-determination

Market Logics vs. Community Logics

Robert Kozinets:

"I believe that we have cultural categories that oppose marketplace modes of behavior (or “market logics”) with the more family-like modes of behavior of caring and sharing that we observe in close-knit communities (”community logics”). When we start to pay people for a particular “transaction” then that becomes culturally coded as a “market logic”–market logics are in effect. This signifies to the person a set of meanings: this is labor, this is work, just do it. When communal logics are in effect, all sorts of norms of reciprocity, sacrifice, and gift-giving come into play: this is cool, this is right, this is fun. I write about the interplay of these two forms of logics explicitly in my article about Burning Man (Kozinets 2002), other book chapters related to that topic, as well as in some of my work on online communities (Kozinets 1999), and fan communities (Kozinets 2001). So think about paying a kid to clean up their room, paying parishioners to go to church, paying people in a neighborhood to attend a town hall meeting, paying people to come out and vote. All these examples seem a little strange or forced. Why? Because they mix and match the communal with the market-oriented.

The two theories are actually quite compatible and look at the same phenomenon from different levels of analysis." (


The perils of mixing open source and money

By David Heinemeier Hansson:

"The most important issue I want to address is what happens when you change from social gratitude to market expectations in reaction to your work. (Predictably Irrational has a great chapter on this.)

External, expected rewards diminish the intrinsic motivation of the fundraising open-source contributor. It risks transporting a community of peers into a transactional terminal. And that buyer-seller frame detracts from the magic that is peer-collaborators.

It also holds the threat of corrupting the community at large. We plant the seeds of discontent by selective monetary rewards. If project A gets funded, it implicitly signals increased comparative worth over project B. Now the makers of project B might well grow dissatisfied with their lack of compensation, and their intrinsic motivation too take a hit. (See Punished by Rewards for more on this).

It's easy to discount such discontent as silly. Why should the makers of project B care what happens in project A? How is their lot any worse because what others choose to do. That's the intellectually superficial response.

But human nature is not so easily dismissed. We all hold an innate sense of justice, and that sense is disturbed when others take extra reward for similar work. Arguing against the rationality of that is to argue against human nature.

Open source has been such an incredible force for quality and community exactly because it's not been defined in market terms. In market terms, most open source projects should never have had a chance.

Take Ruby on Rails. More than 3,000 people have committed man-decades, maybe even man-centuries, of work for free. Buying all that effort at market rates would have been hundreds of millions of dollars. Who would have been able to afford funding that?

That's a monumental achievement of humanity! Thousands, collaborating for a decade, to produce an astoundingly accomplished framework and ecosystem available to anyone at the cost of zero. Take a second to ponder the magnitude of that success. Not just for Rails, of course, but for many other, and larger, open source projects out there with an even longer lineage and success.

It's against this fantastic success of social norms that we should be extraordinary careful before we let market norms corrupt the ecosystem. Like a coral reef, it's more sensitive than you think, and it's how to underestimate the beauty that's unwittingly at stake. Please tread with care." (

Why you should not pay for non-reciprocal peer production

A contribution by Evan Prodromou, who heads Wikitravel [2]:

"In the world of commercial wikis, the idea is often floated that all contributors should be paid for their efforts. I think this is a bad idea for a number of reasons. I've outlined them below.

1. Payment as disincentive. In his interesting book Freakonomics, economist Steven Levitt describes some counterintuitive facts about payment. One of the most interesting is that charging people who do the wrong thing often causes them to do it more, and paying people to do the right thing causes them to do it less.

The best wiki editing is done by people who believe in an important and powerful cause. As so many Open Content wikis show, people will move mountains to achieve a noble purpose. If you mix in money, you've instead changed the main motivation to $$$. You direct people _away_ from any noble purpose you have, and instead towards grubbing for dollars. What kind of people, and work, will you get out of that?

2. Low payment a disincentive. When people work for a noble purpose, they are told that their work is highly valued. When people work for $0.75/hour, they are told that their work is very low-valued. Which kind of work do you want to do?

3. Legalities. Speaking of payment: if you engage in an employment relationship with unknown, self-selected people from any country in the world, for any amount of money, you're going to have to fight your way through labour laws and tax issues all the way to bankruptcy.

4. Market economics. If you have open content, I can copy your content to another wiki, not pay people, and still make money. So by paying contributors, you're pricing yourself out of the market.

You don't have to pay people to do what they want to do anyways. The labour cost for leisure activities is $0. And nobody is going to work on a wiki doing things they don't want to do.

5. No fair system. There's simply no fair, automated and auditable way to divvy up the money. If you do it by character count, you leave out all the people who engage in discussions, improve content by editing and thus deleting characters, or make hugely important changes with just a few characters. If you do it by number of edits (or non-rolled-back edits), you judge tiny and insignificant edits equal to large, well-thought-out and very productive edits.

Decisions about the relative value of different contributors to an article is too complicated to do automatically. But if you have a subjective system -- have a human being evaluate contributions to an article and portion out payments -- it will be subject to constant challenges, endless debates, and a lot of community frustration.

6. Gaming the system. People are really smart. If there's money to be made, they'll figure out how to game your payment system to get more money than they actually deserve. They'll use long -- no, lengthogonous -- words pointlessly to jack up their word count. They'll set up robots to twiddle out-of-the-way pages. They'll work on "hot" pages to get more share of the higher profits, ignoring low-volume pages that need a lot of work.

You'll end up in an antagonistic relationship with your users, rather than a cooperative one. They'll be trying to get as much money out of you as possible, and you'll be trying to give as little as you can to them -- or at least only get them to work on what you want.

7. Paying for friends. If you can't convince people that working on your project is worth their unpaid time, then there's probably something wrong with your project. People are going to be able to sense that -- it's going to look like a cover-up, something sleazy.

If you think you need to pay people to work on your wiki, then you're doing something wrong. Instead of trying to force your users to align with your business interests, by paying them, you should re-align your business interests to be more in tune with what potential contributors want and need. You shouldn't have to pay for friends, and you shouldn't have to pay for wiki contributors." (

Alternative Options to direct payment

Evan Prodromou:

"Why should we work on this wiki if you make money off of it?" The facile answer, "We'll pay you to work on the wiki," is unworkable. So what other options are there?

The important thing to remember about this question is that it's not really what people want to know. They want to know, "Why should we trust you to be the steward of our work?" and "Aren't your motivations different from ours?" and "Are we being duped into working for free by an evil, manipulative entity?" There are a lot of other ways to answer these questions and reassure your contributors of your company's good faith.

  • Be Open. If you have an Open Content wiki, then anyone can make money off of the work there. Let your users know that they're welcome to use the content, just like anyone else, to make extra dough. Encourage creative re-use of the work, for commercial or non-commercial purposes. The more that contributors understand that the work they do belongs to the whole of humanity, and not just your company, the more likely they are to participate.

  • Donate. Set aside a good part of the profits from the site (if there are any...) to donations to related charities. Donations to Creative Commons, the Free Software Foundation, and Wikimedia Foundation are probably all good candidates. There may also be domain-specific charities you can contribute to; if you have a site about pets, say, you could contribute to the Animal Rescue Network.

  • Sponsor. There are a number of wiki-related events that happen each year: RecentChangesCamp, Wikimania, and WikiSym. They could all use sponsorship. Your users will appreciate your association with these events. wikiHow has done a great job with this.

  • Thank-you gifts. If you'd like to reward contributors for work on the wiki, consider giving thank-you gifts instead. "You've done a great job over the last few months -- can I send you a WikiWhatever T-shirt?" Other possible gifts would be gift-certificates for online bookstores or sponsored (or partially-sponsored) trips to wiki conferences. It's important not to make the gifts seem like payment : "You have reached level 4 of WikiWhatever contributor status after 1000 hours of work, and we are sending you a coffee mug." Thank-you gifts should be in the spirit of the BarnStar.

  • Hire from the community. If you've got really, really good people working on your site, and you want them to continue, hire them. Wikia does a really good job of hiring active users.

  • Pay bounties. This is an option that's worked well in the Open Source community. Companies will often pay a developer to implement a feature, fix a bug or build a plugin in an open source project that wouldn't otherwise be a priority. If there's a job that needs to be done on your wiki, and the community isn't interested in doing it, offer a bounty to get it done. (Wikipedia has a loose system for third-party bounties that end up as donations to the Wikimedia Foundation, or rewards that go directly to the contributor.)"


More Information

  1. Comprehensive overview of the Crowding Out effect, at
  2. Money Ruins Everything: non-monetary motivation and its policy implications
  3. Presentation of research by Matthias Stuermer, at
  4. Good summary discussion at the bottom of this "Incentives for Participation" text at
  5. This study says that monetary incentives can work for Open Source Software development, under specific circumstances, see
  6. Benefit Sharing vs. Revenue Sharing
  7. The Overjustification Effect: synonym for crowding out?

Key Book

  • Alfie Kohn. Punished by Rewards. The Trouble with Gold Stars, Incentive Plans, A’s, Praise, and Other Bribes. (Boston: Houghton Mifflin, 1993 / 1999)