Must-Read: Ronnie O'Sullivan & the Limits of Incentives: "What happened in both cases is motivational crowding out...:
...financial incentives can displace intrinsic ones. Small fines crowded out parents’ desire to help kindergarten staff by being punctual, just as a small prize pot crowded out O’Sullivan’s desire to play brilliantly. This is no mere curiosity. One reason for banks’ serial criminality... is that bonus culture has driven out any sense of professional ethics.Daniel Pink, author of Drive, has described this crowding out as ‘one of the most robust findings in social science’....
Tim Worstall is right to say that the core concept in economics is that incentives matter. However, they can matter in unpredictable ways. The point here is a simple one. Designing incentives – in companies, sport, public services or wherever – require careful thought. More thought, in fact, than is often given. I fear that, in the real world, ‘incentives’ in fact serves an ideological function described by George Carlin:
Conservatives say if you don’t give the rich more money, they will lose their incentive to invest. As for the poor, they tell us they’ve lost all incentive because we’ve given them too much money.