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Abstract

The rise of "nudges" has inspired countless efforts to encourage individual choices that maximize personal and collective welfare, with a preference for less restrictive tools such as setting default options or reordering choice sets. As part of this trend, there has been renewed interest in the behavioral impacts of incentives-namely, rewards or penalties for shaping individual choices, including but not limited to financial incentives. Explicit incentives are pervasive in the law, including carrots offered by governments (for example, tax deductions for charitable contributions, rebates for recycling, sentence reductions for prisoners who complete drug rehabilitation programs, and incentives for criminal informants) and statutes or regulations that govern incentives offered by private parties (for example, workplace wellness programs, compensation for blood and organ donation, and pay-for-performance in executive compensation). But despite the intuitive appeal of incentives, legal commentators have expressed increasing alarm about a potential drawback: research in behavioral economics and psychology has come to show many ways in which the use of carrots and sticks may displace other motivations for good behavior, such as altruism, civic duty, or professionalism.

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