1What is motivation? A man or woman is motivated when he or she WANTS to do something. A motive is not quite the same as an incentive. Whereas a person may be inspired or made enthusiastic by an incentive, his or her main motive for wanting to do something may be fear of punishment. Motivation covers ALL the reasons which underlie the way in which a person acts.
2Te word motivation is sometimes used to describe how hard someone is willing to work to accomplish something: you might say that a colleague is highly motivated to finish a project. It can also describe what inspires someone: one person may be motivated by recognition, another by pay raises. Motivation to diet or exercise conjures up images of the discipline required to do something unpleasant. And in offices everywhere, we watch for visible levels of enthusiasm, order pizza to compensate for low morale, and then describe this as motivation as well. Let's look at a more technical definition. People have needs they want to satisfy. We behave in ways that we expect will satisfy those needs. Needs are like the magnet shown in Figure 1.1 that create an internal force to satisfy them. Think about being hungry: the hungrier you get the stronger your desire to eat.
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In a very simple model (see Figure 1.1), we can say that we use energy from our own personal Energy Pool to satisfy our Needs. Motivation is how we choose to allocate that energy to different actions to achieve the greatest satisfaction of our needs. Motivation is the process used to allocate energy to maximize the satisfaction of needs. We allocate time and energy to different actions by deciding direction, effort, and persistence:
Direction: Which actions we will work on
Effort: How hard we will work on those actions
Persistence: How long we will work on those actions
Problems can show up in any of these areas: you may be doing the wrong actions (direction), putting too little energy into an action (effort), or failing to work on an action long enough (persistence). Suppose that each of three project managers does a poor job on a report. Assume that all three have the capability and the resources to do a good job. The first one spends too much time on formatting the report and too little time on getting the content correct. This manager put too much effort into the wrong tasks, an error in direction. The second manager spent only a few hours on the report; not enough time to do a good job. The report required more effort. The third manager did not do the extra steps needed to get all the supplementary information needed to add to the report, so this manager didn't end up with a good report. Here the problem was persistence. All these actions are made possible by the energy a person has available to allocate to actions. A motivating environment will be one where expending more energy leads to satisfying more needs.
3Motivation is important and makes a difference to results, but just saying or believing this is so does not guarantee that it will be done; much less that it will be done well. If you manage people, think for a moment of your own manager or of those others to whom you have reported in the past. You probably have strong views of them, perhaps they helped you - or hindered you. Their attitude may have been constructive, innovative, or they may have driven you mad with what you regarded as an attitude of unnecessary bureaucracy. One lasting impression is surely how your job worked for you as you related with them and how they made you feel about it. The people who work for you will have similar feelings. Motivation is not, however, for all its importance, the only thing a manager must do.
The management task
Managers must manage. But what does that mean? It can be defned as the whole process of obtaining results through other people. Managers are judged on the results of their team, not just on the work they do personally. Classically, there are six key management tasks and it is worth thinking about motivation in context of this full description. The key tasks can be defned as:
Always on Time
Marked to Standard
â€¢ Recruitment and selection;
â€¢ Training and development;
These are the main tasks. They must be achieved, of course, through a profusion of activities: communication, problem solving, decision making, consultation - through to sitting in meetings. And everything, but everything, involves people. Even solo tasks, writing a report for instance, are ultimately concerned with people (unless nobody reads it!). On the one hand, motivation is a particular task, as are the other things that must be done, and one that needs individual care and attention. Here lies one of the problems. Other matters may seem to have greater importance, or rather - for the most part - greater urgency. For instance, imagine that the monthly sales figures are down and you must instigate a crash programme of promotion to rectify matters in a situation where competitors are stepping up their efforts and results are expected by the end of a financial period. Given any such circumstances, then it may be a little difficult to remember to spend some time boosting the feelings of the people who work with you. On the other hand, motivational feeling can, in part at least, be influenced through all the other activities. What is more, time spent building in some action to motivate people might well help achieve the result. Because motivation goes so tightly hand in hand with other management activities, and because how people perform is so closely linked to how they feel about the work they do, the job of motivating people can become an inherent element of the total management job. To set the scene, an example from each of the main management task areas will help illustrate the point:
â€¢ Planning: plan the work and work the plan, as the old saying has it; planning - whether it involves an overall business plan or simply (simply?) a project plan - is ubiquitous in business. Many regard it as a chore; certainly an annual planning exercise can represent a major undertaking, one that is often felt to be primarily for the benefit of senior management. Yet a good plan should make all that follows operationally easier and more certain to achieve (if not, why have a plan at all?). And a plan that plays a part in communication, that has a role in spelling out to those down the line how things will work and why, is certainly motivational. So the various effects on others is something that must be accommodated during any planning process.
â€¢ Recruitment and selection: few things are more important than assembling an effective team. Although many managers like to claim an infallible ability to judge people, it is in fact no easy task and must be done thoroughly, systematically and with a real element of objectivity. It also constitutes the first opportunity to communicate with those who work with the organization; an effective interview and selection process is remembered and sets the scene for successful candidates in terms of how they feel during their early time working for the organization. If they think well of it, it plays a part in creating their initial motivational feelings. It may influence the feelings of others too, who respect a manager who creates a powerful team, and resent a slapdash approach that adds people to the team who do not pull their weight.
â€¢ Organizing: good organization may have to reflect many things: the work to be done, the standards to be set and more. But what is being organized is how people work, and work together, and if organization is also seen to take into account how it affects people personally then it is more likely that they will feel well motivated at least in one respect about their jobs.
â€¢ Training and development: this is a prime management responsibility, especially given the current rate of change in the business world and the need to update or add skills in order to maintain a full capability to do a job. Surveys that ask people what they want of an 'ideal' manager will often list 'someone from whom I learn' at or near the top of the list of criteria. There are surely plenty of opportunities in this area not just to instigate necessary development, but to create positive motivation.
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â€¢ Motivation: some things must be done, and must be seen to be done, in a way that concentrates on the task of motivating. Staff expect attention to be given to this and just working for someone who manifestly cares about the people who work for them, and is at pains to take their situation into account, is itself motivational.
â€¢ Control: managers must manage, and that necessarily entails activities to check results (and to take correcting action if things are not going to plan). Even here there are motivational opportunities - if the amount of checking (and therefore the lack of trust) is too much then de-motivation results. But a manager who never checks, and is seen as uninterested or uncaring, can also be regarded as less than attractive as a boss. Under all of the above headings, and through all the many activities that they constitute, motivation will be influenced.
It is not a question of will management action affect people's motivational status - it will - but only of how it will be affected. For example, at one course I ran in a large City law firm, I was with a group of recent graduate recruits. This is a specialist area and the job of selecting exactly who is invited to join the firm is vital, yet cannot be easy. I asked if they felt that the recruitment process had been well executed. One member of the group responded instantly, saying he felt it had been less than professional. 'I don't think', he said, 'they really have any idea whether I'm a successful recruitment for them or not.' He might have dismissed such feeling and been simply pleased that he had been successful in joining the firm. But, looking back, the process left him with negative feelings about his new employers, yet it surely could - and perhaps should - have acted to motivate. Almost every activity a manager engages in will have motivational consequences. The job is to make sure they are good ones. The first step to doing so is to understand something of the psychology involved. Just what is it that motivates people? In fact, as so often is the case, there are two sides to this particular coin.
The questions to ask are: What makes people feel good and positive about their employer, particularly their manager, and above all their job and all it entails? And what creates negative feelings? Motivation is essentially the job of creating a balance, one that minimizes those things that might create negative feelings and maximizes those that create positive ones; and doing so in a way that ensures that the positive ones predominate.
MOTIVATION THROUGH MONEY
What about money? Our qualitative and quantitative research conï¬rms that money is not and never has been a primary motivator. This conclusion will undoubtedly upset many behavioral psychologists who claim that money is a reinforce, and that reinforces are motivators. The Silent Side does not see things that way. The non- conscious is concerned with causes and reasons for human behavior, not the tactical pursuit of enablers. Money is simply a means for us all to get what we really want. If your Adaptation Motive tells you it's important to own a Lexus to keep up with the neighbors, then you will need money to keep the Adaptation Motive from becoming frustrated. If your Personal Orientation Motive tells you it's important to change your looks, and your Expectation Motive tells you to trust good old Dr. Wintercorn not to ravage your face, money will get you the plastic surgery you crave. In every case, the Silent Side process is that you make a non- conscious decision about what you want; then you ï¬nd a way to get it. In management, money is a factor, not a motivator. To the manager, matters of money, greed, positioning, praise and status are valid considerations. But they are of secondary, not primary, importance. To ï¬nd the motives for such secondary factors, manager must look into the non conscious mind. Silent Side motivations to the resulting whys and wherefores of consumer behavior. For the manager, this information is essential. For the leader, it's critical.
Variable pay for performance has become a fashionable proposal over recent years in private companies as well as in the public sector. Many ï¬rms have given up ï¬xed salaries and have adopted performance-related pay. Firms try to match payment to objectively evaluated performance. It is reï¬‚ected in such popular concepts as stock options for managers and various types of bonuses.
In the public sector, eï¬€orts to raise productivity in the wake of New Public Management have also resulted in attempts to variably adjust the compensation of public employees to their performance. This means that ï¬rms and public administrations increasingly rely on price incentives, i.e. on extrinsic motivations.
We argue in this contribution that variable pay for performance under certain conditions has severe limits. In situations of incomplete contracts - and these dominate work relationships - an incentive system based only on monetary compensation of work is insuï¬ƒcient to bring forth the performance required. In many situations monetary incentives even reduce performance. Work valued by the employee for its own sake or by fulï¬lling personal or social norms is often indispensable. These values or norms may be undermined or even destroyed by oï¬€ering monetary incentives.
Our basic message is that focusing on money as an incentive scheme with complex tasks causes problems. Complex tasks are a typical feature of knowledge-intensive companies which today comprise the most rapidly growing segment of the economy. In contrast variable pay for performance (e.g. via piece rates) is adequate only for simple jobs. For complex tasks monetary rewards are no substitute for good management. Relying solely on money is too simple to motivate people in complex jobs. Successful management consists in wisely choosing among the many diï¬€erent possibilities to evoke interest in the work i.e., raising intrinsic motivation. This can be achieved by establishing personal relationships within the ï¬rm, strengthening participation, and securing procedural justice. All serve to communicate to the employee's recognition and appreciation of their work.
4The Personal Orientation Motive in Leadership
There are four Orientation Motives: Personal Orientation, Place Orientation, Time Orientation and Circumstances Orientation. When an individual gets up in the morning, the ï¬rst thing he or she does before anything else, is orient him- or herself. Sometimes particularly in the very early hours on very cold mornings-that is not an easy task. But once oriented, the individual pretty much stays that way, off and on, throughout the day. Usually it's more on than it is off, since that's the way it has to be. That special orienting device keeps us all on track; the same orienting device that keeps a bird ï¬‚ying north in the spring time and south in the winter time. Just like we are not conscious of walking, we don't consciously tire because of having to remain oriented. But it can be tiring. And the whole rationale of vacation, weekends, escapes, and so on, is based on the need we all have to disorient.
5The contrast between control and commitment has been used to describe approaches to HRM. The distinction has also been described as top down versus bottom-up management, a 'low road' and a 'high road' approach and 'hard' versus 'soft' HRM. In partly by the vogue for process re-engineering and partly by research in organizational psychology and labor economics, another approach to HRM is often manifested through an emphasis on performance management. The adoption of best HR practices remains as the heart of this approach; but it divers from the high-commitment model in the important respect that management retains much of its control. The focus is on the adoption of practices designed to maximize high performance by ensuring high levels of competence and motivation. The relevant HR practices, which have their roots in goal-setting theory and, to a lesser extent, expectancy theory, over an approach to fully utilizing employees. If the focus remains exclusively on high performance, it displays little concern for worker well-being. This short analysis reveals two 'ideal type' approaches to HRM that address the issue of control of workers in rather divergent ways. The 'high-commitment' model appears to cede control to employees by emphasizing self-control alongside but also as a means of generating high commitment. The 'performance management' model allows managers to retain control and uses HR practices as a means of directing workers' efforts more effectively. The former emphasizes intrinsic control and intrinsic rewards; the latter emphasizes external control and extrinsic rewards. Attempts have been made to integrate elements of these two contrasting approaches. At a strategic level, this might be achieved through the concept of ability. In the UK, the initial idea was based on a distinction between a core group of key workers and a peripheral group who were less central to the success of the organization. The implication was that most key workers could be managed using a high-commitment model while peripheral workers required tighter performance management. Indeed, this second group could either be managed divergently or possibly covered divergent kinds of contract or subcontracted to other norms.
6The high-commitment model relies on intrinsic rather than extrinsic motivation. As in our model, managers in the high-commitment model evoke intrinsic motivation by voluntarily relinquishing eï¬€orts to control. Our model diï¬€ers however in focusing on the role of performance measurement. We acknowledge that we have not come near to a full description of the ambiguity-based model. Also, it is impossible to reach conclusive answers through reasoning from anecdotal information. But we maintain that there is something very interesting that asserts itself in these vignettes, and, whatever that is, it deserves more mainstream attention. Moreover, the continued acceptance of the ideal expressed in the three principles of performance measurement seems misplaced.
7The direct high commitment model views key workers as a prototype of the new knowledge worker engaged in high-trust employment relationships where the job and the organizations in which they are employed provide high intrinsic satisfaction and autonomy. If this is the case, then organizations will be exemplars of the high commitment management organization and will show: (1) high levels of affective commitment amongst software workers; continuance commitment will be low because employees wish to stay with the organization even if there are other opportunities elsewhere; (2) high perceived levels of job control, decision influence, fair treatment, satisfaction with pay, skills, training and career prospects.
In the independent organizations, fair treatment and greater job control were positively related to affective commitment, and training to intention to remain. For these organizations elements of the direct high commitment model appeared to be operating.
COMPARATIVE ANALYSIS OF OHTHER INDURTIES
Within the bureaucracy of a firm or other organization, the effect of reward contingency depends very much on the context and the way rewards are being applied. Four cases may be distinguished: (I) In firms, managers spend a great deal of time establishing personal relationships with their inferiors (see, for example, Mintzberg, 1975). This activity serves to build up intrinsic motivation, but as a consequence, an external intervention perceived to be controlling may crowd out the intrinsic motivation fostered. This danger is understood by top management. As a consequence, monetary incentive payments are little used in reality although standard economics strongly favours them (see for example Baker, Jensen and Murphy, 1988).
(ii) Promotion based on performance, if interpreted as an acknowledgement of general competence, tends to raise work morale. However, if perceived as a reward contingent only on one's specific externally determined performance, this tends to reduce it. This does not mean that in the latter case the promoted person is less motivated overall, but only that his or her intrinsic motivation has been marginally substituted by the external incentive of promotion. It therefore does not contradict the basic incentive-promoting assumption underlying the economics of tournaments, provided the additional external motivation is larger than the crowding out effect.
An employee's perception of whether the principals' intervention is controlling or supporting depends on the extent of differentiation made between the workers. At one extreme, all employees are treated the same by the principal; at the other extreme, the principal makes a conscious effort to distinguish the rewards or commands according to the workers' presumed level of intrinsic motivation. The more uniform the external intervention, the more negatively are those employees affected who have above-average work morale. They therefore adjust their intrinsic motivation down wards. A case in point is the administration of governments and hierarchically structured large private firms which are forced by general rules to intervene uniformly.
The public sector, in particular, is often restricted by a general salary scale and finds it difficult or impossible to vary compensation according to the work morale exhibited. As a result, in state-run institutions, more employees reduce their intrinsic work motivation to a low level than is the case in more flexible small private institutions. Intrinsic work motivation tends to be most strongly undermined when the superiors are incapable or unwilling to restrict and punish employees who consciously exploit the system to their personal advantage.
COMPARATIVE ANALYSIS OF OTHER EONOMIC SITUATION
Incentives and Motivation
Incentives can be positive, negative, or the sum of both, but in most cases will be based on some relatively complex combinations of interests. Such interests combine in different ways for different people; which complicate attempts to structure incentives in support of improved performance. Such combinations of interests are affected, at least to some degree, by the calculation of the opportunity costs of performing assigned activities and/or complying with established procedures.
Although it is the sum of incentives and disincentives which create motivations, for the purposes of this paper it is useful to separate direct financial incentives from non-financial incentives. To illustrate this point, this Section will focus on incentives for civil servants as key stakeholders in the system
When considering financial incentives, it is useful to distinguish broadly between situations in which direct pay and emoluments are sufficient to raise family income above subsistence and situations in which such pay and emoluments are not sufficient. The specific incentives which might further improve performance efficiency and effectiveness are likely to be more complex for those above subsistence than for those below that level
Too many civil servants in LDCs, especially in Africa, are paid salaries and benefits below subsistence requirements. These subsistence civil servants cannot be expected to approach the performance of their official tasks with sufficient commitment to efficient and effective performance.
Farmers, for example, cannot be motivated to produce above subsistence when the economic cost of inputs is negative or when there is nothing on which to spend profit. In the same manner, subsistence civil servants will not be motivated to increase their expenditure of inputs without, at a minimum, a subsistence level economic return. As obvious as this appears, appropriate responses are not so obvious.
When extrapolating from an industrialized developed country perspective, the focus is almost always on direct monetary salaries whose financial costs are easy to identify and measure. However, several other types of indirect benefits also have financial implications for setting civil servants' position above or below subsistence. Examples include: time made available for pursuing economic activities outside of government service; availability government transport for use by family members; and services provided by "messengers" and other marginal staff in the form of shopping for food and other household supplies. The primary advantage in incorporating both direct and indirect costs of income to public employees is that it makes the costs of public employment more transparent than when much of the remuneration is in the form of indirect services. Thus, it is much more difficult to determine the extent to which particular public employees are actually above or below subsistence.
Non-competitive salaries and benefits, inefficient employment policies and procedures, and public sector retrenchment programs often result in the temporary recruitment of specialized technical staff as contract personnel outside the normal civil service. Such personnel are often provided with contracts which include enhanced terms and conditions of service.
Using contracts to employ staff having specific technical skills pertinent to a particular short-term task or to the requirements of a time-bound project implementation phase can be an efficient approach. Such contracts legitimately include enhanced salaries over that of the regular civil service because such employment is temporary and compensation for retirement and other related benefits should be provided. However, when personnel performing tasks relevant to subsequent operations are paid enhanced salaries, or when contract personnel are employed as substitutes to avoid such issues, problems of sustainability are likely to result.
The issues identified above are particularly important in those countries undergoing a fiscal stabilization program. Under those conditions, the conundrum is often encountered that one must raise salaries and benefits, absorb the increasing costs of indirect benefits to sufficiently motivate people, and recruit technical personnel on contracts outside the civil service while, at the same time, reducing the amount of government finance available to remunerate public employees. That conundrum is quite often resolved by an attempt to reduce the size of the public service and limit reliance on personal employment contracts, with the expectation that funds remaining to the wage bill will be distributed to remaining staff. Such redistribution is often expected to result in increased salaries to remaining staff.
When faced with such issues, yet another approach might yield better results. Contract personnel are, in effect, individual private sector contractors. In those terms, the precedent for assigning project implementation responsibilities to the private sector, under contract to the public sector, has already been well established in most LDCs. Thus, all that would be necessary to fulfill the suggestion made throughout this paper would be to extend the practice of hiring individuals to contracting-out to local private sector firms. That is what many LDC governments already do when hiring foreign technical assistance firms to manage donor-financed projects. Such arrangements would be particularly appropriate in situations where local governments intended to contract with private sector firms for O&M of those public goods and services established by a project once completed.
The specific incentives which might further improve staff performance are likely to be more complex for those above subsistence level than for those below it. Many incentives are likely to be non-financial. These incentives can be disaggregated further into two categories: generic incentives and incentives associated directly with public sector employment at local levels
Generic incentives include such considerations as: opportunities for significant career advancement over time; potential for exercising power and influence; pleasant and effective working relationships with supervisors and colleagues; access to appropriate facilities; and status and prestige. The extent to which local governments can provide such incentives to staff whose remuneration exceeds subsistence levels, especially as compared to such conditions offered elsewhere, can have a significant impact on their performance
Incentives Specific to Local Governments
Some elements which might contribute to positive incentives for seeking employment in local governments rather than central governments include: ability to work close to home and in own cultural environment; stability of location of employment/avoiding prospects of frequent nationwide reassignments; expectation of observable impact of performance on own community's environment; reduced costs of living outside of capital cities; reduced disruptions in life-style and/or employment of spouses and children; and entry into organized political parties or local groups of political influence
Within a decentralized system, different governments at different levels and agencies within different sectors could offer alternative incentives. Such different schemes could be expected, at least theoretically, to attract different people with different preferences. To the extent that those attracted are the right people for the job, such systems could be deemed to be appropriate. Where the relevant population groups' attitudes towards incentives are shared, different schemes could be expected to provide intelligence about the optimal structure of incentives.
The many difficulties inherent in any major program of decentralization need not present impossible barriers to the establishment of rational public sector policies and practices. However, appropriate policies are not likely to occur serendipitously. Careful analyses and design of decentralization programs, including the establishment of supportive incentive systems, should be a high priority of any program to rationalize the public sector.
The conventional wisdom holds that participatory management and decentralization are not likely to work unless they are accompanied by concerted efforts to build local capacity. That most often leads to advocacy of programs for improving public sector management capacity at local levels. But too often, such programs are unnecessarily comprehensive, too long-term, costly, and unlikely to satisfactorily achieve their objectives. Thus, such a response is self-defeating.
A more fruitful approach is to consider the capacity required for effective decentralization considering a more limited role for the public sector in general. In that situation, local governments might very well have expanded functions as compared to their role in a substantially centralized system, yet have considerably fewer responsibilities than those normally assigned to them in any system of active decentralization. In this way, the role of local governments would be enhanced with regard to the provision of public goods and services through performance of the planning, public expenditure, and revenue generation functions. Staffing would be mainly limited to those personnel required to perform those three functions. Local government responsibilities for O&M would be limited to financing such activities, establishing specifications and schedules, and monitoring the performance of that function.
The focus on capacity would shift to some extent to an emphasis on requirements of the institutional system rather broadly conceived. If meeting those requirements is not feasible or if sub-national governments do not have the capacity to perform those provision functions assigned to them, priorities need to be established for the allocation of responsibilities. Some strengthening of public sector capacity at those levels might also be required.
Even with a dramatic reduction in the role of the public sector, scarce professional and technical staff will still be required by both central and sub-national governments. Approaches to such issues should address trade-offs between the potential impact of a labor market approach to public sector employment and the impact of maintaining relatively uniform conditions and terms of service.
Although advocacy of substantial changes in the role of the public sector and changes in employment policies can contradict fundamental political values within a country that need not necessarily be the case. With the recognition that incentives at the aggregate level represent the sum of various trades-offs among conflicting and changing values at the individual level, some elements of both economic reform and supportive decentralization programs can appeal to a critical mass of individuals and interest groups. Determining which incentives on a disaggregated basis might appeal to what segments of a society is important in assessing the potential impact of alternative decentralization arrangements on economic development programs.
I THE PRICE EFFECT ONLY WORKS SOMETIMES
1 Its role in micro- and macro-policy
8The Price Effect - stating that individuals change their behaviour systematically when the cost (or price) of doing so changes - is the backbone of modern economic theory. For that reason, it is also basic for economic policy both at the micro- and macro-economic level. For policy making at the micro-level, the dependence on the Price Effect is rather obvious. Examples are, for instance, tax incentive programmes for investments which reduce the cost of capital by allowing more rapid depreciation for tax purposes, or subsidy programmes which reduce the cost of hiring additional workers by directly transferring money to the firms. Another example is road pricing where the external effects produced by an individual driver on all other drivers in a congestion are monetarized by imposing an appropriate charge. The Price Effect is also fundamental for macro-economic policy though it is less visible. In environmental policy, the economic approach is based on the notion that while nature is scarce (that is, carries a positive shadow price), it can be used for free, and is therefore overexploited. Thus, it is necessary to establish a positive price for using natural resources either by directly introducing environmental charges (or taxes), or by handing out licences which because of their scarcity will be traded at a positive price. The increased cost of using the resources provided by nature results in a decrease in demand for its exploitation, and hence contributes to saving the environment. In monetary policy, an increase in the stock of money influences aggregate output and the price level by inducing changes in the relative prices of assets, and also the saving and spending decisions of individuals and firms.
Under important circumstances, it is not irrelevant what motives induce individuals to act. When creative, innovative, entrepreneurial, scientific and artistic services are desired, they are more efficiently supplied when the individuals concerned are intrinsically motivated (as shown in the last chapter). A substitution to monetary incentives is likely to decrease the quality of the service which is often not easily observable. Another reason why the substitution of money-induced behaviour is undesirable or even rejected is the perceived value of the good produced. Many people, for instance, prefer to be cared for by their loving kin when they are ill and old (at least in so far as non-medical services go), and when it comes to dying, few prefer to end their days in the company of people who have been expressly paid for this service. This holds for European countries and even more so for the rest of the world, while it may be somewhat different in North America (but perhaps only because Americans normally no longer have the possibility to be cared for by their kin, and have therefore given up respective desires).
When a Crowding-Out Effect takes place, the same quantity of supply is provided at a higher price than if no such effect existed. When the effect is strong, the price difference may be sizeable.
In the case of individuals demanding the good or activity, this may result in persons of low income no longer being able to consume the commodity because their budget prohibits it. The substitution of intrinsic by extrinsic motivation thus raises questions of income distribution and fairness. In each case it would have to be analysed how the distribution of opportunities looks like between the various incomes groups in society. While it is certainly not possible to provide a general answer, there is a nagging suspicion that me low income groups are often better off in a supply system based on intrinsic motivation than on monetary incentives.
To take the example of the previous subsection: it seems likely that the poor in Third World Countries are by far better off when old age care is undertaken in the family framework than if they had to buy the corresponding services on the market. One could well think that this result is in many cases obvious as an allocation over the price system is by definition more favorable to those who can invest the necessary money, that is, the high income recipients. But the issue is not quite so simple because one has to consider the additional possibilities of gaining monetary income when the price system is introduced. It might, for instance, be hypothesized that the low income recipients are especially competitive with regard to the market care for the sick and the old.
A monetary payment received through the functioning of the market constitutes a case where the reward depends on performance; in a perfectly competitive market the reward (wage rate) depends exactly on the marginal product performed. The price system therefore tends to substitute intrinsic with extrinsic motivation. On the other hand, a market reward may also indicate competence and then tends to raise work morale. 'Scientists, artists and entrepreneurs receive rewards for performance that may be described as feelings of competence and self-determination' (Lane, 1991, p. 389), an aspect which has been emphasized by Schumpeter(1936).