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Roberts and Pink on Incentives

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09/05/2010

Econtalk host Russ Roberts interviews author Daniel Pink on the topic Drive, Motivation and Incentives in last week’s podcast. Pink’s message is that a substantial body of empirical evidence shows that people are only motivated to a limited extent by money to increase their production in a work situation. Once employees are paid “enough”, other motivators take over, such as “autonomy, mastery and a sense of purpose.”

Some thoughts I had while listening to this.

As I understood Pink’s synthesis of the research, a given individual may not increase their work production by the incentive of more money beyond a level they are satisfied with. What I think that this shows is that offering the same set of employees marginally more money may not improve output. However, the way I suspect that the labor market works is that different individuals who produce a higher level of output find their wages bid up as they move around the labor market.

Around 19:00, Pink raises the question of whether a large bonus for producing a new idea that succeeds in the market would produce more and better products. Roberts points out “Dan, that is the way our economy actually works”. Roberts points out that this is how entrepreneurial competition works. The market rewards entrepreneurs who produce a great new product with a large “bonus”, known as “profit”. The prospect of this reward stimulates many entrepreneurs to try new ideas, some of which fail. Thank you Russ Roberts for not letting that point get by.

However, the point Roberts makes is slightly different than what I think the research shows. For a company, holding the set of employees constant, the research questions whether offering a bonus to those employees will result in more innovation. It might or might not; maybe the employees of that company are not very entrepreneurial or are highly risk-averse. But what the market for new products and new firms does is to select those individuals — employed or otherwise — who are motivated by the possibility of earning profits.

Pink is not convinced, citing the example of people who have accumulated a large amount of wealth from profits on one company who start another company because the marginal value of the additional money is insignificant to that person. He interprets this to mean that entrepreneurs are not primarily motivated by money. I believe that Pink is correct, that we are all motivated by many things including, but not limited to money. But I don’t think that his example proves the point: successful entrepreneurs may still be motivated by earning money.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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