Tertium Datur: Pricing, Regulating and Intrinsic Motivation

Beyond prices and regulations, a third motivation influences human behavior: intrinsic motivation. Under identifiable conditions, rational individuals replace their intrinsic by extrinsic motivation when prices and regulations are imposed from the outside ("crowding-out effect"). Conversely, policy instruments that acknowledge intrinsic motivation and extend actors' self-determination "crowd-in" intrinsic motivation. Empirical studies support these psychological effects.