Crowding out does not seem like a rational response to being offered money for a behavior — why wouldn’t we prefer to gain something for an activity? While the effect is observed, it can be difficult to explain why it happens, since it seems like it does not benefit the individual to reject a reward.
Although there are many studies that reveal the crowding out effect, there are also a number of studies that support the relative-price effect and operant conditioning. According to the behavioral perspective, all behavior is actually a reflection of acquired conditioning.
It is also important to note in which situations the crowding out effect occurs. According to the study conducted by Lepper, Greene and Nisbett, it was only when children knew prior to drawing that they’d receive a reward that they later became less motivated to draw for its own sake. One group of children were given a ribbon after they completed the task, and this reward did not seem to impact their intrinsic motivation to draw afterwards.10 These findings suggest that unexpected rewards might not lead to crowding out.
Whether a reward is given for the performance or completion of a task impacts the presence of crowding out. Psychologist Dr. Robert Einsenberg found that offering children rewards for performing well, not just for performing, actually increased the quality of their performance.10 This study supports operant conditioning as it suggests that when a reward is tied to one’s effort or success, it acts as a reinforcement of that skill and motivates them to continue to do well. Therefore, while it might not be a good idea to give a child a reward for completing their homework, it might help to give them a reward if they get an A on a test.
There is also evidence that crowding out only occurs when someone already has intrinsic motivation to perform the task at hand. If they do not, they might benefit from a supplement external reward. For example, while someone who already donates blood regularly is intrinsically motivated by altruism, the hospital might be able to reach individuals who do not feel that intrinsic motivation through the promise of a reward.
Don’t Give Thanks With a Gift!
Non-profit organizations and charities do not give people monetary rewards for donating, but some still try to provide some kind of reward or thank-you gift to make donors feel appreciated. However, thank you gifts, as a form of external motivation, can still crowd out intrinsic motivation and make people less likely to donate again.
Assistant Professor of Economics Matthew Chao conducted a study that examined the impact of thank-you gifts on donation incentives.12 Chao partnered with a public radio station as it was rolling out a monthly membership renewal campaign. Participants received a solicitation member asking them to renew their membership and continue donating so that the radio could continue providing their service. Half the participants were in the thank-you gift group. Of those participants, half were in the ‘swag’ condition, and half were in the ‘meals’ condition. In the swag condition, the participants’ solicitation letter came with an advertisement that said they could receive an optional thank-you gift (a tumbler) if they donated $180 to the radio. In the meals condition, participants’ solicitation letter came with an advertisement that said the radio would donate 60 meals to the local food bank as a thank-you if they donated $180.
Chao found that for both the swag and the meals conditions, donations significantly decreased. He posited that it was because the thank-you advertisements crowded out people’s altruism and intrinsic motivation, even though one of the gift options was a charitable donation. From this experiment, Chao concluded that it does not matter what the thank you gift is; any thank you gift will result in crowding out.12