Market Incentives and the Evolution of Intrinsic Motivation
This paper introduces a model where the extent of intrinsic motivation co evolves with the structure of rewards in society through workplace socialization. Workers vary in terms of intrinsic motivation, and firms compete for workers. Some firms rely on intrinsic motivation and others on extrinsic rewards in equilibrium. Cultural change arises through workers being influenced by social interactions with co workers depending on their types and the reward structure. A society can become more or less intrinsically motivated depending on endogenouslydetermined reward structures and initial conditions. We show that in the long run economies that rely on intrinsic motivation or extrinsic incentives will have similar levels of average productivity but the former will have higher welfare levels. *We are grateful to workshop participants at the LSE and the conference on Dysfunctional Institutions at the World Bank for helpful feedback on an earlier version of this paper.