Incentive

Incentives are anything that persuade a person or organization to alter their behavior to produce a desired outcome.

Incentives are widely studied in personnel economics, where researchers and human resource managers examine how firms use pay, career opportunities, performance evaluation, and other mechanisms to motivate employees and improve organizational outcomes. Higher incentives are often associated with greater levels of effort and higher levels of performance. In comparison, disincentives discourage certain actions.

Incentives encourage specific behaviors or actions by persons and organizations, and are commonly employed by governments, businesses, and other organizations. Incentives may generally divided into two categories: intrinsic and extrinsic. Incentives, however, can also produce unintended outcomes, relating to the overjustification effect, principal–agent problem, moral hazard, free-riding, or adverse selection.

Incentives encourage specific behaviors or actions by persons and organizations, and are commonly employed by governments, businesses, and other organizations. Incentives may generally divided into two categories: intrinsic and extrinsic.

Political scientists Peter B Clark and James Q Wilson categorise incentives into three types: material, solidary, and purposive.

Author David Callahan identifies three broad classes of incentives. Remunerative or financial incentives, involve material rewards. Moral incentives involve action being regarded as the right or admirable choice; individuals acting on moral incentives may experience self-esteem, praise, or admiration from others, while failing to act accordingly can result in guilt, condemnation, or even ostracism. Coercive incentives threaten, when failure to act in a specified way occurs, the use of physical or coercive force by others.

An intrinsic incentive arises when an individual is motivated by personal satisfaction, interest, or enjoyment in an activity, without seeking external rewards or responding to external pressure. Extrinsic incentives involve external rewards or pressures, such as monetary compensation, recognition, or the threat of punishment.^{[citation needed]}

Both intrinsic and extrinsic incentives influence behavior, though research suggests intrinsic motivation may have stronger and more sustainable effects by increasing genuine enjoyment and engagement. Intrinsic incentives are often associated with greater autonomy, commitment, and work involvement. At the same time, excessive reliance on external rewards can diminish intrinsic motivation, a phenomenon known as the overjustification effect, and crowd out intrinsic incentives.