Crowding Out

Introduction

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.

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

Empirical evidence of the crowding effect

From the study by Tobias Assman at https://courses.ischool.berkeley.edu/i296a-3/f06/wiki/index.php/Incentives_for_participation

"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.

Services

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.' (https://courses.ischool.berkeley.edu/i296a-3/f06/wiki/index.php/Incentives_for_participation)

Theoretical Explanation

From the study by Tobias Assman at https://courses.ischool.berkeley.edu/i296a-3/f06/wiki/index.php/Incentives_for_participation

"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

More Information

Comprehensive overview of the Crowding Out effect, at http://www.iew.unizh.ch/wp/iewwp049.pdf