Why motives matter: reframing the crowding out effect of legal incentives.

• Author: Atiq, Emad H.

NOTE CONTENTS INTRODUCTION I. LAW AND THE THEORY OF INCENTIVES A. An Economic Approach to Human Behavior B. The Law as an Engine for Incentives II. THE CROWDING OUT EFFECT: THEORY & EVIDENCE A. When Incentives Do the Work of Intrinsic Motivation: Crowding Out Theory B. Evidence for the Crowding Out Effect C. The Traditional View of Why Crowding Out Is a Problem: Intrinsic Motives as Mere Means III. WHY THE CHARACTER OF OUR MOTIVATIONS MATTERS: REFRAMING THE CROWDING OUT EFFECT A. Grounds for Distinguishing Motivations B. Motives, Self-Definition, and Orienting Oneself Towards the Good C. How Motives Enable Valued Ways of Relating with Others D. An Incentive's Effect on the Motives We Care About IV. IMPLICATIONS FOR LAW AND REGULATORY DESIGN A. The Law of Nature Restriction on Patentable Subject Matter B. The Unenforceability of Donative Promises that Have Not Been Relied Upon C. The Declining Popularity of Heart-Balm Laws D. Rules Versus Standards E. Uncharted Waters: Moral Edification Through the Crowding Out Effect CONCLUSION INTRODUCTION

Capacity for the nobler feelings is in most natures a very tender plant, easily killed, not only by hostile influences, but by mere want of sustenance.... Men lose their high aspirations as they lose their intellectual tastes, because they have not time or opportunity for indulging them; and they addict themselves to inferior pleasures, not because they deliberately prefer them, but because they are either the only ones to which they have access or the only ones which they are any longer capable of enjoying.

--John Stuart Mill (1)

A powerful principle underlies much contemporary legal analysis and regulatory design. The principle is that of the "incentive"--an extrinsic prompt that induces agents to act in ways they might not otherwise by altering the expected consequences of their actions. Often taking the form of financial reward or punitive sanction, incentives do their work by raising the costs of socially undesirable behavior or the benefits of socially desirable behavior. Incentives thus compensate for the inadequacy of individuals' natural motivations to behave in socially desirable ways and, unsurprisingly, pervade contractual rules, tort duties of care, tax regulations, and virtually all other areas of the law.

Despite the widely acknowledged benefits of generating incentives for good behavior through the law, scholars have raised concerns about their pervasive use. (2) One category of concern stems from the unintended costs of motivating individuals by way of extrinsic prompts. A substantial body of empirical research has shown that in many contexts individuals lose their natural or "intrinsic" motivations for engaging in an activity when they are successfully induced to participate in it for extrinsic reasons, like monetary reward or fear of sanction. (3) Motivation grounded in a sense of civic duty, or a commitment to self-improvement, or moral concern, appears undermined in the presence of monetary and sanction-based incentives. Extrinsic motivation is said to "crowd out" intrinsic motivation, and the phenomenon is commonly referred to as the "crowding out effect." (4)

In this Note, I explore a normative dimension to the crowding out effect that has been neglected by previous scholarship. The crowding out effect, as traditionally conceived, portrays legal incentives as potentially counterproductive; the net decline in intrinsic motivation often makes agents less likely to engage in the activity regulators hoped to incentivize. (5) One might say that the traditional conception of the phenomenon renders an internal critique of legal incentives, one that questions whether incentives adequately satisfy their purpose. There is a different way of regarding the crowding out phenomenon, one that suggests an external critique of incentivizing, and it is this alternative that I hope to develop in what follows.

I argue that quite apart from the effect on behavioral outcomes, the erosion of intrinsic motivation is often worth regretting for its own sake. When an increasing number of our actions are done for monetary reasons, or out of a fear of punishment, and when this renders vulnerable such wellsprings of motivation as a sense of fairness or a commitment to personal growth, the effect on our values and motivational psychology is inherently bad. (6) This normative conclusion is unaffected by the finding that extrinsic motivation is more effective in driving socially desirable behavior. Socially optimal behavior, under an incentives regime, may come at the cost of individuals failing to develop a diverse and sufficiently rich set of reasons for acting. The existing literature on the crowding out effect has failed to take seriously the possibility that the character of our motives matters quite apart from the behavioral ends that motives enable. (7)

I demonstrate that the neglected moral dimension to the crowding out effect has important consequences for widely debated questions of law and policy. A normative framework that recognizes that legal incentives often undermine motivations inherently worth preserving can be brought to bear on the analysis of doctrinal rules in intellectual property, contracts, and torts. Moreover, it sheds insight into the comparative performance of rule- and standard-based legal directives, and the potential for using the law as a means for moral education. The framework I develop is thus geared towards emphasizing a normatively salient feature of the effect that laws have--a feature that bears on important policy questions, but remains ignored in debates about what the law should be.

The structure of the Note is as follows. In Part I, I introduce the theory of incentives. I discuss the economic models of rational decision making that underpin the theory, and provide examples of regulations informed by the incentivizing approach. I introduce, in Part II, the crowding out phenomenon as traditionally conceived. I refer to both the theoretical and empirical considerations underpinning the view that incentives crowd out intrinsic motivation.

The Parts that follow represent my contribution to the literature. In Part III, I develop an original version of the crowding out critique of incentives. I explain how our motivations can be distinguished, descriptively and morally, and why having the right motives matters from the agent's perspective. I argue that incentives interfere with our individual aspirations to be the best versions of ourselves because our considered preferences regarding our ideal selves are irreducibly preferences over motives and ways of valuing things in the world. Furthermore, certain valued ways of relating with others positively require that individuals cultivate and routinely give expression to motivations like kindness and reciprocal respect. Incentives interfere with the cultivation of such forms of motivation.

Then, in Part IV, I demonstrate how the moral insights gleaned in Part III have practical value for lawmakers. One set of examples proceeds from the observation that existing legal doctrines evince a reluctance on the part of lawmakers to implement legal incentives in certain spheres of human activity--for instance, those involving scientific enterprise, marital relations, and gift-giving. This disinclination finds a partial explanation (or normative justification) in the importance of motive-preservation: certain valued ways of caring should not be undermined by the law. The examples discussed include the "law of nature" restriction on patentable subject matter, the unenforceability of donative promises that have not been relied upon, and the declining reputation of heart balm laws. Next, I show that the theory generates insights into the trans-substantive debate over the choice between bright-line rules and open-textured standards as legal directives. I argue that a neglected benefit of using standards as a legal form is that, in certain contexts, standards mitigate the crowding out effect by giving private actors a chance to exercise their intrinsic motives and higher interests. Standards thus are advantageous in domains governed by the law where we think it is important for individuals to cultivate good character. I illustrate this principle using examples of standards in Fourth Amendment search-and-seizure doctrine, trade secret law, and the Federal Rules of Civil Procedure. Finally, I make brief note of how the law can be employed strategically, on account of its effect on motivation, to improve the way citizens conceptualize their obligations to each other, using the example of the tax code's incentive effects. It bears emphasizing that I do not purport to offer complete causal explanations or normative justifications of the legal phenomena I analyze. Rather, the examples I discuss are illustrative of the potential for a normative theory that reframes the crowding out effect in the manner I propose to generate new and powerful (if incomplete) insights into the law.

As a final introductory remark, it is worth emphasizing at the outset that this Note is not intended as a jeremiad against incentives, market norms, or excessive regulation. It is, rather, an attempt to show how we can put to work, in a hardheaded manner, an important yet ignored moral insight regarding the

use of legal incentives (which undeniably do a lot of good for society). One of my chief purposes in opening with the quote of Mill, the great advocate of utilitarianism, is to convey that my normative arguments will have a certain flavor that economists and progressive regulators might find attractive. (8) Where others have appealed to under-analyzed notions of "sanctity" and "corruption" to explain why motivating agents to do certain kinds of things (donate organs, for instance) destroys the good in the achieved outcomes, I do not seek to undermine the value inherent in socially desirable behavior even when it transpires under an...