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. 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

Examples

"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." (http://www.roughtype.com/archives/2006/07/benkler_on_cala.php)

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." (http://www.roughtype.com/archives/2006/07/benkler_on_cala.php)

Explanations about Crowding-Out in General

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

Discussion

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." (http://evan.prodromou.name/Paying_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.)"

(http://evan.prodromou.name/Paying_wiki_contributors)

More Information

1. Comprehensive overview of the Crowding Out effect, at http://www.iew.unizh.ch/wp/iewwp049.pdf
2. Presentation of research by Matthias Stuermer, at http://stuermer.ch/blog/documents/ethz_LinuxTag2007_CrowdingEffects.pdf
3. Good summary discussion at the bottom of this "Incentives for Participation" text at https://courses.ischool.berkeley.edu/i296a-3/f06/wiki/index.php/Incentives_for_participation
4. This study says that monetary incentives can work for Open Source Software development, under specific circumstances, see http://opensource.mit.edu/papers/Alexy_Leitner_-_Norms_Rewards_and_Their_Effect_on_the_Motivation_of_OSS_Developers.pdf
5. Benefit Sharing vs. Revenue Sharing