Economic Incentives and Social Preferences: Causal Evidence of Non-Separability

This paper investigates the hypothesis that the objective function of economic agents is non-separable in economic incentives and social preferences. We study fixed-prize contests in a 2 × 2 experimental design, varying orthogonally the degree of competition of the incentive mechanism (all-pay auction vs. lottery) and the presence or absence of social returns to bidding (public good vs. rent seeking). The results indicate that both stronger competition and the presence of the public good have positive main effects on bids. More importantly, we find a negative interaction between stronger competition and the presence of the public good, leading us to reject separability. These findings provide causal evidence that economic incentives may negatively affect pro-social behavior. More generally, they indicate that social preferences should be taken into account for the optimal design of incentive mechanisms.