Dark Side of Incentives: Evidence From a Randomized Control Trial in Uganda

Abstract

Throughout our lives, we are routinely offered different incentives as a way to motivate us. Many researchers have studied the effects of incentives on people’s performance. There can also be important psychological outcomes in terms of stress and happiness. The current paper contributes to the literature by explicitly accounting for this performance-versus-well-being trade-off introduced by incentives. I implement two types of social comparative feedback regimes, within and across-class group comparisons, and two types of incentive regimes, financial and reputation rewards. The results show that rewards can improve performance up to 0.28 standard deviations, but at a cost of higher stress and lower happiness, whereas comparative feedback alone (without rewards) increases performance only mildly, by 0.09 to 0.13 standard deviations, but without impact on student’s stress and happiness. More stressed students exert less effort, perform worse and are absent by 29 percent more compared to those who are stressed minimally. The results also help to identify gender-specific responses to incentives. While boys strongly react to rewards, girls do so only if they are also provided with feedback. Final contribution comes from a rich dataset of more than 5000 primary and secondary school students in Uganda, who were repeatedly tested and interviewed over one academic year.