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A Price Is a Signal: on Intrinsic Motivation, Crowding-out, and Crowding-in


  • We would like to thank two anonymous referees of this journal as well as one of the editors for very useful comments.

* Corresponding author Freidel Bolle Europa-Universität Viadrina Frankfurt (Oder) Lehrstuhl Volkswirtschaftslehre insbesondere Wirtschaftstheorie (Mikroökonomie) Postfach 1786 D – 15207 Frankfurt (Oder), Germany Email: Email:


If a previously unpaid activity (e.g. donating blood) is paid, then we often observe that this activity is reduced. In this paper, it is hypothesized that the price offered is taken as a proxy for the “value” of the activity. Depending on how the actor valued the activity previously, crowding-out or crowding-in is implied, an effect with or without persistence after stopping the payment. The model can be adapted to a number of similar situations, including those where a high price signals high costs instead of high values. Our “naïve” explanation is confronted with Bènabou and Tirole's (2003) Principal-Agent model. A questionnaire study supports our basic hypothesis as well as some of the derived consequences, and contradicts Bènabou and Tirole's model.