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Is Intrinsic Motivation Relevant to Environmental Policy?*

By Erik Gawel, University of Bielefeld

I. Introduction

In the discussion on the rational choice model of individual behavior, one aspect has come intofocus in recent years, which has previously been addressed by social psychology: that decisionstaken by individuals are motivated by “intrinsic factors” and as such do not represent a (direct)response to exogenous incentives.1 Special attention is being paid to the aspect that the thesis pro-posed by economic theory, namely that a predictable behavior modification can be induced in indi-viduals by a variation of external incentives, must be qualified in terms of validity in view of theinteractions that occur with intrinsic motivations to act. Especially problematic in this respect is aninversion of typical response patterns: A reinforcement of the incentives provided by relative pricesdoes not necessarily lead to the anticipated reinforcement of ongoing behavior if, and insofar as, anintrinsic motivation is crowded out simultaneously.

Even economists now seem to agree that psychological and motivational aspects are generally rele-vant to human behavior, particularly to environmental behavior. But what exactly does this implyin terms of the shaping of environmental policy by way of pricing and/or command-and-controlmeasures? This article will therefore not ask whether intrinsic factors are generally significant interms of human environmental behavior, but whether this undoubted fact permits any conclusionsconcerning the preferability of specific environmental policy programs and the corresponding in-struments – in short: whether environmental policy, which is currently characterized by extrinsicintervention, should include intrinsic motivation in its considerations.

Of particular concern in this respect is the question of whether policy recommendations based oneconomic theory regarding a rationally conceived environmental policy need to be revised in thelight of intrinsic motivation issues and the acknowledgement of its relevance for environmentalproblems. As the theoretical and instrumental discussion of past decades has shown, the question“Are Incentive Instruments as Good as Economists Believe?” (Weck-Hannemann/Frey 1995) islikely to draw a skeptical response for a number of reasons; but does it also have to be viewed criti-cally when the reference is to the motivation underlying intrinsic behavior? Or, in concrete terms,does the recommendation made by environmental economics - though this can no longer claimuniversal validity2 – namely, to address environmental problems by way of a systematic modifica-tion of relative prices, have to be qualified in view of “environmental ethics”, or even abandonedfor specific sectors, or at least reformulated in terms of the aims and range of applicability? The

*This contribution originated in the research group “Rationale Umweltpolitik – Rationales Umweltrecht”organized by the Center for Interdisciplinary Research of the University of Bielefeld, Germany. It is based ona paper presented to the Committee for Environmental and Resource Economics of the Verein für Socialpoli-tik on April 23-24, 1999 in Innsbruck, Austria. I am indebted to Hannelore Weck-Hannemann for valuablecomments.1 On the socially psychological discussion, see Deci 1975, among others; Deci/Ryan 1985; on the economicreception, see e.g. Frey 1997a with many additional references. On the environmental sector, Kelman 1981,69 ff., apparently the first to discuss this aspect explicitly.2 On this, see e.g. Oates 1990; Cropper/Oates 1992.

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relevant literature provides affirmative answers to this question, albeit varying in degree.3 Thiscontribution aims to examine whether the motivation behind intrinsic behavior sets limits to the“rational external intervention in human environmental behavior” (Weck-Hannemann 1999), andwhether recommendations, especially for more “market incentives”, in environmental protectionshould be revised accordingly.4

II. On the role of intrinsic motivation in the environmental sector

1. Intrinsic motivation in the rational choice model of individual behaviorThe concept of “moral” action may either refer to the motivation underlying behavior or to theexhibited results of behavior: When a specific action is “inner-directed” and to this extent does notrefer to an external influence (e.g. coercion, incentives etc.), one speaks of “moral” behavior in amore narrow sense; when an action is aimed at complying with moral codices, but results from anexternal (e.g. social) influence, one could speak of “morally conformable” behavior.5 For the pur-pose of our analysis, “moral” behavior may be equated with “intrinsically induced” behavior. Thisleaves untouched the aspect that “intrinsic” behavior may also be immoral and, conversely, thatmorally conformable behavior may also be externally induced by pressure or rewards for confor-mity, that is, of extrinsic origin.6 Nor does an “intrinsic preference” necessarily have to be rooted inmoral beliefs.7 Nevertheless, in the present context, we will use Frey’s assumption of a synony-mous meaning, although this will be gradually challenged in the following chapters.

It should be noted that the phenomenon of an intrinsically motivated (“moral”) action is not part ofany orthodox economic theoretical assumptions about the behavior of rational, self-interested indi-viduals. This could suggest a “distinction between a behavior that is anchored in environmentalethics and one induced by considerations driven by self-interest” (Frey/Oberholzer-Gee 1996,213). For practical reasons, though, intrinsic motivations are integrated into the rational calculationof the decision-maker as an additional category of utility.8 Accordingly, individuals’ behavior isdetermined by the external benefit and external cost of decision options as well as by an additionalsource of benefit, that is, an “inner satisfaction”. Given the context of such a decision-making proc-ess, the motivation underlying intrinsic behavior of individuals with an “average moral disposition”will prevail only when the latter meet with low cost in the extrinsic sphere (Kirchgässner 1996, 3 See e.g. Frey 1992b, 399 ff.; Frey/Oberholzer-Gee 1996, 208, 230 ff.; Frey 1997a, 58 ff.; recently againWeck-Hannemann 1999, 81.4 This much has at least been suggested by Frey in his numerous works on the subject. Thus, political deci-sion makers should “in some situations be moderate when using pricing and regulating instruments or evenrefrain from using them”. (Frey 1997a, 101); under certain conditions, “market instruments for environ-mental protection should not be used at all because they entail serious detrimental side effects” (Frey 1997a,59). Frey/Oberholzer-Gee 1996, 208, even “warn” against the uncritical use of instruments based on pricemechanism and regulation for the protection of the natural environment”. Recently and similarly, Weck-Hannemann 1999, 81.5 See e.g. Leschke 1996, 78f.; similarly, Vanberg 1997, 170 ff., who distinguishes between a ”behavior moti-vation” that may be either ”ethical” or self-interested and a “socially desirable behavior”.6 On the notions of moral and intrinsically motivated action, which are by no means identical, see, amongothers, Kirchgässner 1999; Gerecke 1999. In the context of this paper, however, we will, for the moment,adhere to Frey’s assumption of a synonymous meaning.7 On this, also Frey 1997b, 114 f.; he distinguishes several “varieties of non-calculating or intrinsic motiva-tion”, but in conclusion emphasizes: “As internalized ethics constitutes an especially important sphere, I willbelow, beside intrinsic motivation, also speak of ethics.”8 On this, see the principal-agent model in Frey 1997a, 27 ff. Similarly, Weck-Hannemann 1999, 73 ff.

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1999):9 Moral action10 – exceptional individuals excluded – can be expected on average only in thecase of low-cost decisions: “In the case of low cost – in the sense of negligible consequences of anindividual decision for the individual concerned – some elements which reflect social motives andmoral aspects [...], in particular, may affect the utility function.” (Weck-Hannemann 1999, 78). Thetheory of low-cost decisions11 provides some clues as to the behavioral relevance of (environ-mental) ethics. For an overwhelming majority of economic subjects, ethical incentives thus repre-sent only a category of “low utility”, being a kind of “minimal ethics” (Kirchgässner 1996) of deci-sion makers who continue to be extrinsically sensitive.

The low-cost argument has been a topic of the environmental policy discussion for some time12,serving, inter alia, to derive a negatively inclined demand function for environmental ethics:13

When environmentally friendly behavior costs little, it tends to affect the behavior of environ-mental moralists whereas, when the cost of ecologically correct behavior increases, “environmen-tally hostile” decisions will increase, ceteris paribus. Given this state of affairs, economists arehardly surprised at the considerable gap between “environmental behavior” and “environmentalconsciousness”:14 From an economic perspective15, environmental consciousness and environ-mental ethics are neither necessary nor sufficient conditions for environmentally friendly behavior:“There is environmentally adequate behavior even without environmental consciousness”16, butalso – which is worth emphasizing - environmental ethics without consequences in terms of action.The effective role of ethics is determined by extrinsic behavior incentives which include not only avariation in monetary pay-offs and the expenditure of time (as a cost), but also various forms ofsocial incentives, which may be of a non-monetary kind, but are definitely extrinsic by nature.17

If there is an improvement in the net position of an individual due to a change in extrinsic incen-tives, orthodox economic theory assumes there will be a behavior change toward increased activitybecause an incentive-induced activity will have become relatively (in relation to other decisionoptions) more advantageous (relative price effect). Such a “normal” reaction is of course weakenedor even reversed, if a basic intrinsic motivation is destroyed by this very intervention (crowding-outeffect). Such an anomalous pattern leads to negatively sloped reaction curves.18 These indicate thatactivity is generally declining because the positive relative price effect is overcompensated by anegative crowding-out effect (over-crowding-out). 9 On the problem of “average moral constitution” of individuals in relation to the environmental issue, seealso Lübbe-Wolff 1999, 18 ff.10 Priddat 1997, 175 ff., id. 1998, referring to an ethically guided consumer behavior, speaks of “moral con-sumption”.11 On this, see esp. Brennan/Buchanan 1984; Kliemt 1986; Kirchgässner 1992, 1996; Kirchgäss-ner/Pommerehne 1993.12 See e.g. Kirsch 1991, 251 ff.; Diekmann/Preisendörfer 1991, 229.13 Frey 1997a, 62; previously already Kirsch 1991, 251 ff.14 On the comparatively high ranking of environmental consciousness, for example in Germany, see a recentoverview in Kuckartz 1998, 5 ff., 27 ff.15 On competing social scientific explanations, see e.g. Kuckartz 1998, 51 ff.; Grob 1991.16 Kuckartz 1998, 2.17 A clear distinction between intrinsic and extrinsic factors, the latter being communicated via social mecha-nisms, is therefore indispensable for this analysis. On “voluntary individual behavior” induced by “socialrewards/ sanctions”, see Holländer 1990 and Rauscher 1997. The analytical distinction is made difficult bythe fact, however, that, generally, intrinsic norms are introjections of expectations of social behavior (inter-nalization of norms): “Internalization of norms essentially means the development of an internal system ofsanctions that is structurally equivalent to the external system” (Holländer 1990, 1163).18 On this concept, Frey 1997a, 102 ff.; critically, Gawel 1999a.

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Such crowding-out takes place only under certain psycho-economic conditions, however; on theother hand, extrinsic intervention may also be conceived of as a confirmation of intrinsic motiva-tions, thereby reinforcing the latter (crowding-in effect).19

Moreover, there is concern that there might not only be a situational crowding-out, but also, andworse, a spillover of negative moral effects to other sectors so far unaffected by intervention (spill-over effect) (Frey 1997a, 41 ff.). This might result in counterproductive effects not only in the ac-tual sector affected by intervention, but also cause actual damage, at worst to environmental ethicsand citizens’ moral behavior as a whole – thus undermining the foundations on which a democraticenvironmental policy is essentially based. Should this happen, governmental intervention in citi-zens’ environmental behavior would need to be thoroughly reviewed; environmental economics,too, would be well advised to reconsider their current environmental policy giving due regard toethical aspects.

2. Intrinsic foundations of environmental policyThe question of whether governmental intervention aimed at protecting the environment may un-dermine environmental ethics is of considerable importance insofar as a basic intrinsic motivationof the actors involved is crucial for a successful environmental policy.20 Frey/Kucher 1999, 13,name three central areas in which an effective environmental policy depends on “environmentalethics” and thus on basic intrinsic motivation:

- In view of the well-known problems of political economy surrounding implementation, aneffective environmental policy is possible only if the environmental interests of individuals canbe articulated and effectively realized by voting, that is, if citizens are willing “to vote in favorof the public good, that is, ‘environmental protection’”. In view of free-riding behavior andweak incentives to articulate one’s environmental interests by voting, “environmental ethics”,in particular, could provide the lacking motivation to participate in and to vote for environ-mental quality.21

- Rules and laws introduced by environmental legislation for the protection of natural resourcesmust as a rule prevail over individual motives for contravening or evading them. In this con-text, the problem of rule enforcement22 applies both to imperative procedures and those basedon economic incentives, as rule-breaking will always provide the option of increasing individ-ual welfare (e.g. an evasion of emissions in the form of taxes or licenses). Whether those boundby the rules will conform to behavioral norms prescribed by governmental environmental pol-icy, essentially depends on the fact that behavior conforms to the rules even where there is nocontrol. Enforcement of, and conformity to, the rules therefore depend on ethical motives to actin this spirit.

- Wherever the use of economic (or imperative) intervention does not appear practicable fortechnical or economic reasons - for example, when the knowledge required for behavioral con-trol is inaccessible, or is accessible only at prohibitive transaction costs - intervention is re-quired in sectors where there is no control. This is regularly the case when the environmental

19 On this in more detail, Frey 1997a, 20 ff.20 On the necessity of moral behavior for the functioning of market economies, generally Kirchgässner 1996,231 ff.21 On this, already Diekmann/Preisendörfer 1991, 229 f.22 On this generally, from a constitutional political economy point of view, also Leschke 1996.

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problem is structured atomistically, that is, when it consists of many small to very smallsources of pollution (non-point pollution, causation by private households). The limits of gov-ernmental intervention in such cases highlight the significance of intrinsically motivated, envi-ronmental behavior without which problems, such as “unauthorized waste disposal” or coop-eration in the recycling economy (collection, separation and return of materials), can hardly besolved.23

III. The relevance problem as it affects the choice of instruments of a rational environmental policy

Under what conditions does an assumed intrinsic motivation to preserve the environment become aproblem for governmental environmental policy? For the undesirable detrimental effects ofcrowding-out to occur, it seems that three general conditions must be fulfilled, namely that parallelextrinsic and intrinsic motivations occur (and compete) in an individual’s perception; that the en-suing motivational interaction is conflictive; and that the conflict induced in this way adverselyaffects the achievement of the environmental policy target. It seems opportune therefore to examinethe plausibility of such a constellation in order to assess the relevance of potential negative effectsfor environmental policy:

- Under what conditions do intrinsic and extrinsic motivations actually coincide in environ-mental policy (chap. IV.1)?

- Under what conditions is interaction resulting from this coincidence genuinely conflictive, thatis, does crowding-out occur, does a reinforcement occur, or do both motivations remain neutralvis-à-vis each other (chap. IV.2)?

- Under what conditions will a potentially conflictive interaction have a detrimental effect on theachievement of the policy target (chap. IV.3)?

An assessment of the relevance of the spillover effect (chap. V.) concludes the discussion.

IV. The crowding-out effect

1. Under what conditions do intrinsic and extrinsic factors actually coincide in environmentalpolicy?

Environmental ethics – as an intrinsic motivation to preserve the ecological equilibrium – will inprinciple, just as moral behavior in general, be of supra-individual significance only in “low-costsituations”. Conflicts arising from the allocation of environmental goods, however, are typicallyregarded as a problem of high-cost decisions.24 Consequently, empirically relevant problem areas

23 Essentially, the two last-mentioned areas fit in the same context: Where an asymmetrical distribution ofinformation exists between principal and agent concerning the level of environmental activities, or the cost toeliminate the former appear prohibitive, control measures and sanctioning are doomed to fail structurally dueto a lack of knowledge regarding the true level of activities conducted by an environmental agent. Enforce-ment and monitoring (area 2) and policy implementation (area 3) of the rules of external intervention wouldthen differ only in degree in terms of “ethical requirement”.24 It is true that environmental decisions are often considered under the rubric of low-cost decisions insofar asan individual decision produces no relevant results in terms of its impact on environmental quality, either forthe decision maker or other individuals; at the same time, with respect to private cost, an individual environ-mental decision is highly relevant on an individual economic level (Weck-Hannemann 1999, 77 f.).

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for an intervention in environmental behavior via “environmental consciousness” are generallyassumed to be found only in the private household sector.25 The areas most likely to be significantin this respect are behavior relating to waste disposal, individuals’ cooperation in the recyclingeconomy, as well as consumer decisions favoring ecological products – in short: disposal andproduct-related policies.26 Transport-related behavior or a responsible use of energy, though, con-stitute typical high-cost situations in which ethical motivations can hardly be expected to guideaction (Diekmann/Preisendörfer 1991). The entire spectrum of environmentally relevant, privatedecision-making may ultimately be significant intrinsically, but is unlikely ever to enter into anykind of “motivational competition” because potentially detrimental, external price incentives orcommand-and-controlmeasures cannot be implemented in that sector: The effluent of smallamounts of toxic waste water from private households, for example, is, of course, exempt from theGerman waste water charge. Similarly, the waste disposal policy for private households, as formu-lated in the new German legislation on waste recycling, does little more in terms of interventionthan place trust in an intrinsically motivated cooperation with citizens.

For the competitive sector of firms, however, the relevance of intrinsic motivation will not be aserious consideration at any rate, as the cost of eco-conscious behavior, which is not rewarded inthe market, tends to be prohibitive.27 It should be noted, though, that the high-cost argument relat-ing to entrepreneurial activity, which remains basically valid, has recently been challenged as to itsrange of applicability.28 It is stated, for example, that environmentally conscious behavior may beattractive for the entrepreneurial sector insofar as “special profits” can be made: “Eco-consciousbehavior might be worthwhile for a firm if it helps it to increase its sales and avoid a conflict withenvironmental activists. [...] Likewise, an environmentally conscious management policy will beadvantageous if it improves relations with the government and public administration and brings inadditional government contracts.”29 While these aspects contradict the global assumption of anti-environmental or environmentally ignorant behavior in the entrepreneurial sector, they also do notprove the existence or importance of intrinsic motivation either30: They reflect purely extrinsiccost-benefit conditions that present themselves to decision-makers from the outside. However, theymight possibly point to a certain appeal generated by the ecological awareness of other marketactors (government, consumers, the public), whose motivation remains obscure: This might beinduced by the effects of pricing as well as by moral considerations. Consequently, in the economicdiscussion on the problem of the observance of social “rules”, a rigid distinction is normally madebetween “moral” and “morally conformable” behavior (Leschke 1996, 78 f.): Morally conformable 25 Similarly, Diekmann/Preisendörfer already in 1991: “It is particularly the sphere of various everydaysituations in which environmental education and environmental ethics can be assumed to play a role. [...] Onthe other hand, no reasonable politician will expect that moral appeals can solve the problem of industrialemissions.” Similarly, Kirchgässner 1999, who, with regard to the waste problem, assumes a dominance ofextrinsic incentives influencing decision making even in private households: “As experience in the GermanFederal Republic has shown, the monetary incentive, i.e., cost saving in domestic waste disposal, plays amore important role than an individually perceived moral obligation.”26 Similarly, Kuckartz 1998, 41 ff.; Diekmann/Preisendörfer 1991, 207 ff.27 Similarly, Leschke 1996, 91: “As a rule, an entrepreneur under competitive stress takes decisions in whichexternal incentives (profits or costs), as compared to potential intrinsic costs, carry so much weight that thelatter are a negligible factor in entrepreneurial decision making.”28 See e.g. Frey 1997a, 62 f.; similarly, already Frey 1992b, 405 f.29 Frey 1997a, 63, who discusses these effects under the heading of “Self-Commitment: Intrinsic Motivation”beside “External Incentives: Extrinsic Motivation” as a source of motivation to preserve the environment.30 Frey 1997a, 67 f. disagrees, though somewhat inexplicitly; similarly, id. 1992b, 405 f. The “as if” argu-ment (firms behave as if they adhere to a moral obligation), in which Frey 1992c, 405 f., engages, actuallyblurs the differences between morally induced and merely morally conforming behavior.

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behavior may, but need not, be an expression of moral behavior when extrinsic incentives (e.g. thespontaneous sanctioning of rule-breaking) suggest the compliance with norms.

Equally unproductive is the reference to sectors with little competitive pressure, where compliancewith environmental rules would not mean an immediate exclusion from the market; nevertheless,the target of minimizing costs would then be (seriously) disregarded. As arguments against thethesis of the irrelevance of intrinsic factors in the entrepreneurial sector – which they are supposedto provide31 – they are hardly suitable. The high-cost argument, as an effective obstacle for an in-trinsically induced action by firms, cannot be refuted in this way.32

To sum up, it can be said that, in the environmental domain, too, “ethics” remains relevant only inlow-cost situations; but these are not normally targeted by governmental environmental policy.33

The reason for this may be (1) that governmental intervention is oriented toward potential damageto the environment, and that the cost of avoidance incurred by private actors in general correlatespositively with damage caused by non-avoidance. In other words, where the issue is about the pre-vention of serious damage to the environment, with environmental policy taking appropriate action,even “voluntary” measures to protect the environment are also likely to induce high cost (that is,ethics plays hardly any role in individual behavior); (2) conversely, the sectors in which ethicsplays an identifiable role (esp. in the environmental behavior of private households) normally re-main beyond the reach of external intervention and control by governmental environmental policydue to institutional restrictions to such intervention and control; (3) and the more insufficient thecurrent contribution made by basic intrinsic motivation to the environmental target seems to be, themore urgent an external environmental policy intervention becomes. Thus, it seems that environ-mental policy makes an appearance only when intrinsic factors cannot, or not sufficiently, solveenvironmental problems.

This in turn makes it more difficult to establish the arena where competing motivational forcesactually operate, and from where crowding-out and spillover effects might flow to influence moralfoundations crucial for an efficient environmental policy. For structural reasons, intrinsic and ex-trinsic motivations thus appear to be generally “non-simultaneous” in the environmental sector.

Even if extrinsic and intrinsic motivations coincide in the environmental sector, the exact outcome,in terms of intervention, of such a coincidence appears rather uncertain (chap. IV.2).

2. Under what conditions is the interaction of extrinsic and intrinsic factors in environmentalpolicy conflictive?

a) Regarding the social psychological basis: Is there a crowding-out mechanism?

31 See also Frey 1993, 652 f.: “It is [...] to be expected that firms supplying intermediate and homogeneousproducts, and operating in competitive markets are less, or not at all, subject to motivational effects of pric-ing.” The greater proximity to the consumer or the easing of competitive constraints are supposed to raise thesensitivity to “motivational” price effects. This does not change the fact, though, that, in trying to minimizecosts, an oligopolist or monopolist will also refrain from intrinsically induced action when costs are too high,and that the relevant intrinsic motivations cannot explained in terms of market or public returns as these arealso of an external nature.32 Similarly, Leschke, 1996, 91.33 Similarly, Kirchgässner 1999.

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The proponents of the thesis of the relevance of intrinsic motivation in the environmental sectorassume that crowding-out can be observed “under identifiable and empirically significant condi-tions” (Frey 1997a, 5). Moreover, this basic structure is said to be “significant, especially for envi-ronmental policy” (Frey/Oberholzer-Gee 1996, 219). But the empirical existence of the crowding-out effect is a controversial issue also in the social psychological discussion. Recent social scien-tific meta-analyses of ongoing empirical research (Cameron/Pierce 1994; Eisenberger/Cameron1996, among others) suggest that the practical significance of the phenomenon is far less than hith-erto assumed to be the case. Thus Gerecke, referring to these sources, states:

“If something like the crowding-out effect of intrinsic by extrinsic motivation does exist at all, ameta-analysis of empirical research done over the last 25 years suggests that this effect occursonly under very specific and easily avoidable conditions. Only when material rewards are of-fered independent of performance is there an effect that can be interpreted as confirmation ofthe thesis of the crowding-out effect.”34

However, these doubts regarding the socio-psychological existence of the crowding-out effect willnot be discussed any more in this paper; for simplicity, it will simply be assumed that the danger of“crowding-out” is a fact to be taken into account in economic analysis.

b) On the economic-institutional conditions of the crowding-out caseFrey et al. emphasize that the effects of crowding-out are not an automatic phenomenon of rein-forced extrinsic incentives, but occur only under specific conditions. They consider the socio-psychological context to be ambivalent.35 The possibility of reinforcement by way of perceivedsupport and confirmation is opposed by the risk of a decline in intrinsic motivation: Here, externalintervention will either be perceived as “controlling” and “taking away responsibility”, thus shift-ing the individual locus of control to an external sphere and assigning responsibility to the princi-pal; in this process, intrinsic motivation turns out to be redundant and gradually disappears (“over-motivation”); or the intervention causes “frustration” because previous efforts have apparently notbeen acknowledged; diminished self-esteem would then lead to a reduced intrinsic impulse to act(“frustration”).

The reinforcement effect, which is also theoretically conceivable, differs from destructive crowd-ing-out in terms of the phenomena of intra-psychological perception. “It can therefore not be ex-cluded that the same intervention is perceived as controlling (and thus reducing intrinsic motiva-tion) by one person and supportive (thus increasing motivation) by another”36, as Frey rightlypoints out. “In order that these conditions can be applied to socio-economic problems which exceedthe dimension of a particular individual, it is necessary to identify the empirically observable con-ditions under which these countervailing perceptions typically occur.”37 What are the conditions,then, under which motivations aiming in the same direction cause intrapersonal conflict? Frey1997a, 65 f., referring to environmental goods, offers four conditional theses:

34 Gerecke 1999, 8 (manuscript counting; emphasis supplied). Gerecke rightly explains (ib., n. 5) that thismeager empirical evidence appears moreover to be at variance with usual assumptions concerning the impactof rewards on the effect (cf. Deci 1975, chap. 5; Frey 1997a, 37).35 On this, e.g. Frey/Oberholzer-Gee 1996, 220 f.; Frey 1997a, 20 ff.36 Frey 1997a, 25.37 Ib.

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(1) “The more personal the relation between principal and agent, the higher the intrinsic moti-vation to cooperate. External intervention destroys the existing balance and causes a shiftof the locus of control [...] A crowding-out effect can be expected.”38 (Anonymity)

(2) “The greater an agent’s possibilities of codetermination, the more will external interventionshift the locus of control to an external sphere and intrinsic motivation be crowded out.”39

(Codetermination)(3) “The more uniform external intervention is, the greater will be the crowding-out of the

intrinsic motivation of agents with an above-average motivation. Their perception is thatthe principal’s intervention does not honor their competence and commitment, in turncausing them to lower their intrinsic motivation.”40 (Uniformity)

(4) “The more closely reward is related to the performance to be delivered, the more likely willintrinsic motivation be crowded out.”41 (Performance dependency)

Surprisingly, a study of the explanatory patterns supplied reveals that these are supposed to definethe “conditions under which environmental ethics is diminished by environmental political inter-vention” (Frey 1997a, 65). First, it does not seem plausible that in governmental environmentalpolicy, especially insofar as it favors price incentives, the conditions of the non-anonymous domainof social proximity and of the participation of those affected in the decision making should be ful-filled (theses (1) and (2)). The opposite is more likely to be the case. Moreover, thesis (3) seems toconfuse the condition with the prerequisite needing explanation, for whether a uniform extrinsicintervention has a more “frustrating” effect on the highly motivated naturally depends on whetherthe intervention is perceived as lowering motivation in the first place. Uniformity would then rein-force something that is still far from clear. At any rate, thesis (3) does not mention any conditionunder which external interventions might be perceived as frustrating at all. Only thesis (4), relatingto the performance dependency of incentives, could prove relevant for target-related interventionsof the environmental political principal, but ironically happens to contradict the empirical condi-tions of the social psychological crowding-out effect which – according to Eisenberger/Cameron1996 – has been observed especially and only when it occurred independently of the performancedelivered!42 And, rather than provide a proper criterion for the distinction between crowding-outand reinforcement, thesis (4) describes degrees/ levels of intensity.43

Let us look again at theses (1) and (2) which Frey corroborates by referring to the problem of thecommon pool resource. Initially, it appears quite plausible “that a decline in ethical motivationthrough outside intervention and control plays a role especially in the domain of social proximity,albeit less so in anonymous and impersonal relations. For example, children will be motivated to bedishonest rather than honest when they get the impression - by constant doubts and controls - thatthey are suspected of lying and cheating. On the other hand, moral discouragement is hardly caused

38 Frey 1997a, 32 f. Elsewhere (e.g. 1997, 65) however, Frey refers repeatedly to the personal interactivenetwork “of those affected”, which is something entirely different, of course.39 Ib., 35.40 Ib., 35.41 Ib., 37.42 On this, already chap. IV.1.a.43 By contrast, Lübbe-Wolff 1999, 38, proposes a useful discriminating rule with respect to the “frustrationmechanism”: “Frustration-related moral discouragement does [...] not automatically result from any externalregulation and external control, but occurs only where regulation and control is carried out by way of denyingreasonable trust or a reasonable appreciation of moral performance.” In the domain of social proximity, ade-quate trust between agent and principal is expected and demanded – cf. also thesis (1) in Frey 1997a.

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in a person because he or she has to produce a ticket when asked to do so, although this also sug-gests a lack of trust on the part of the railway company. Travelers understand why ticket checks arenecessary for the functioning of the railway, and do not interpret this as a lack of reasonabletrust.”44 Where, in the context of environmental protection, is such a constellation applicable andcan a crowding-effect be considered probable?45 The involvement of many (local) environmentalproblems in constellations of domains of social proximity claimed by Frey 1997a, 65 can be usedby him as proof of his crowding-out thesis only because of his sudden departure from his previ-ously (Frey 1997a, 32 f.) formulated condition of anonymity: Rather than personal interaction be-tween principal and agent, it is now the relations “between those involved” which are supposed tobe intrinsically relevant - apparently a reference to those competing for utilization (as agents). It isundeniable that “personal relations [...] [play] an important role in local environmental problems”.46

That “personal relations can help to defuse the problem of public goods”47 is also common knowl-edge. More comprehensible local conflicts increase the chances of a spontaneous and market-endogenous internalization of external effects, as the discussion on the Coase theorem and espe-cially Coase 1960 himself have shown. But any connection with a lowering of agents’ motivationby the external intervention of the principal, which is of concern here, is not immediately clear.Social proximity provides favorable conditions for a spontaneous internalization via cooperation,for instance, opportunities for communication, social sanctioning, and so on. Though based on non-anonymity, these conditions are still part of an extrinsic string of data of intrinsic incentives andcost, but do not refer to any intrinsic motivation or obligation to solve dilemma situations. Experi-mental economic research has clearly shown that morally conformable behavior is, first and fore-most, due to social control rather than hard-to-identify intrinsic factors. Thus, the moral relevanceof “social proximity” primarily has to do with the identifiability of actors and the possibility ofproviding platforms for social sanctioning by repeated interactions.48

The fact that, under conditions of a calculable social proximity (bargaining situation), a supple-mentary governmental intervention such as the Pigovian tax, for example, has a dysfunctional ef-fect, was already shown by Buchanan/Stubblebine 1962 (and the subsequent discussion).49 Thatgovernmental intervention in an existing structure of “social reinforcement” may have a counter-productive effect, is discussed in the recent literature.50 But this proves neither the presence of “so-cial proximity” in the principal-agent model required for a crowding-out effect, nor any intrinsicmotivations contributing to the conflict resolution, although these could be helpful in defusing the 44 Lübbe-Wolff 1999, 38.45 Lübbe-Wolff 1999, 39, comes to the following conclusion: ”Constellations in which environmental regula-tions and an adequate measure of control of the latter are commonly understood as a denial of reasonabletrust, which would be more morally damaging than legally useful, are hard to imagine.” (Emphasis supplied).46 Frey 1997a, 65.47 Ib.48 On this, see Laury/Walker/Williams 1995, 366, who explain the willingness to share in dictator games by“a social concern for what others may think, and for being held in high regard by others”. Güth 1995, 334,argues similarly that moral or fair behavior in bargaining situations cannot be attributed to intrinsic motiva-tion: “Fairness is a social norm which yields reliable expectations only when its compliance can be moni-tored.” Bohnet/Frey 1997 distinguish between “strategic” and “non-strategic good conduct” and state: “Moralbehavior may be rewarded not only extrinsically by social regard /respect, but also intrinsically.” On thesocial reward for cooperative behavior, also Holländer 1990; Rauscher 1997.49 Buchanan/Stubblebine 1962 analyze a bargaining situation that is coupled with the levy of a supplementaryPigou tax. From the equilibrium solution, which is the result of the combined effect of the two mechanismsand differs from the simple bargaining or Pigou optimum, the authors wrongly conclude that only this solu-tion could be the optimal one. On this, critically Baumol 1972; Shibata 1972.50 See e.g. Holländer 1990; Rauscher 1997.

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conflict. The empirically supported evidence of spontaneous solutions to common resource prob-lems accumulated by Ostrom 1990 and Ostrom et al. 1994 can, of course, also be explained with-out reference to intrinsic factors, as shown in Coase 1960. Social rewards that may be earned in amutually agreed conflict resolution within a group process are also of an extrinsic nature and pro-vide no proof of the existence and importance of intrinsic motivations.51 As the new institutionaleconomics has shown, the institution of “trust”, being an economically rational abstention fromcontrol activities which claim resources is, first and foremost, an extrinsic mechanism (North 1990,40 ff.; Williamson 1985); in the principal-agent context, moreover, trust still reflects primarily anexchange transaction (Breton 1998).52

One might also argue about the relative importance of either local or global problem constellationsas the origin of current environmental policy;53 it is an unarguable fact, though, that, at the begin-ning of the 21st century, governmental environmental protection responsibilities in the maturecapitalist economies will no longer include intervention in problems of overuse, for example of“alpine pastures” or “fishing grounds”, for which Frey mentions intrinsic factors. But it would bemistaken to consider the solution of local, common resource, problems as evidence of specific mo-tivational conflicts in the domain of social proximity between agent and principal, and it would beirrelevant with regard to actual environmental problems awaiting solution; equally doubtful is thealleged effect of intrinsic motivation observed in practical cooperative solutions analyzed inOstrom 1990 and Ostrom et al. 1994. This is not to deny, though, that intrinsic factors are helpfulin negotiated settlements and that external intervention may have a negative effect. The spontane-ous development of institutions for coping with utilization conflicts is, in itself, no proof of eitherthe existence or the dominance of intrinsic factors (susceptible to detrimental effects). Moreover,such problem-solving constellations do not adequately reflect the most urgent (global) challengesconfronting current governmental environmental policy.

Where, in environmental policy as we know it, do we observe the existence of non-anonymousrelations between principal and agent? If at all, this can be assumed only for the classical com-mand-and-control system in its interaction with the licensing and monitoring authorities on the onehand, and the firms using the environment on the other. But, apparently, this is a constellationwhere, on the agent’s part, neither intrinsic motives are likely to play an appreciable role, nor “rea-sonable” trust will be impaired by command-and-control measures. A specific characteristic ofsolutions based on pricing, on the other hand, is structural anonymity.

Thus, there is still no proof that the specific conditions for the operation of the crowding-out effectare present in environmental policy; moreover, a convincing formulation of suitable conditionsunder which environmental political crowding-out can be expected to occur is still lacking.

c) The problem of reward: profit-taking effect or crowding-out effect?

51 The insufficient differentiation of social and intrinsic motivations is also deplored by Kreps 1997 andGerecke 1999, 9, the latter directly referring to Frey 1997a.52 This does not exclude the possibility that trust may be motivated by a moral imperative, although this can-not be automatically inferred from the empirically observable abstention from controls and safeguards (i.e.,of the existence of trust).53 On this, views apparently differ, e.g. Frey 1997a, 65, who emphasizes local environmental conflicts: “Thenotion that all environmental problems are global or international is mistaken”; by contrast, Kirchgässner1999, 10: Intrinsically motivated activities “do not affect today’s crucial problems of environmental protec-tion, which tend to be of a global nature.”

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The focus of the discussion on crowding-out is on the question of direct reward for “moral” be-havior, for example by subsidies – incidentally not a relevant question in the economic theory ofenvironmental policy. Is it possible to explain, in economic terms, a decrease in activities or a di-minishing willingness to act, as has been observed in this area, without having recourse to struc-tures of intrinsic motivation?54

The decrease in individual motivation to act under the impact of monetary incentives, especially inthe form of rewards, can also be explained by strategic modes of behavior within the framework ofan “immature” rational choice model of individual behavior55 (profit-taking effect): According tothis, an understating of the willingness to act is rewarded, provided incentives are generated bywait-and-see attitudes and refusal behavior in a cost-benefit setting, which is not easily observedfrom the exterior. The demonstrated willingness to act correspondingly decreases to the increase inthe compensatory reward offered by the principal. If, conversely, a supportive reward by the prin-cipal is (credibly) refused should the level of activity reach zero, there is no reason for the agent tohide his or her (intrinsic) preferences.

Thus, to explain lack of motivation in spite of reward, the notion of “intrinsic motivation” need notnecessarily be introduced. The analysis of subsidies as an instrument of environmental policy hasreadily shown that effects of strategy and profit-taking can neutralize or even obstruct the effect ofincentives.56 An intrinsic readiness – provided it does exist – need therefore not be crowded out orbecome undermined; nevertheless, an incentive is constituted in this way for an individual to turnhis or her readiness into cash. Manifestations of refusal in the post-reward phase could therefore beregarded as an expression of strategic behavior rather than a consequence of intrinsic behavior mo-tivations having been extinguished. Differently motivated intentions to act, deriving, for example,from individual cost-benefit calculations of external incentive conditions, could then remain and belinked with a claim for subsidization. If the reward depends on the extent of refusal, an understatingof the readiness to act in the desired manner would then pay off – entirely independent of its actualextent. This is why, among economists, agreement existed long before the debate on the intrinsicissue that, for the reason mentioned, “reward/s” cannot serve as an appropriate instrument of envi-ronmental policy, although the incentive effects in the partial model would ideally be equivalent tothose generated by taxes.57

However, with the mechanisms of liability, certification or the levying of taxes, which are the onlyones considered relevant by environmental economists, the profit-taking effects of the reward justdescribed do not occur: their mechanism primarily sanctions “behavioral misconduct”; desirablebehavior may benefit from this in relative, albeit not absolute terms, so that there are no incentivesprovided here for strategic behavior.

54 Gerecke 1999, using the example of payment by results (i. e. incentive wages), shows that other “instancesof crowding-out” can also be explained quite plausibly in terms of conventional model constructions.55 Frey 1997a, 113 ff., calls the behavior model of a human individual additionally endowed with intrinsicmotivations “Homo Oeconomicus Maturus”, who is supposedly “more mature” in view of the greater differ-entiation of his or her motivational structure.56 See e.g. the contributions to the “Bribes vs. Charges” controversy – Kamien/Schwartz/Dolbear 1966a, 147ff., 1996b, 856 ff.; Freeman 1967, 287 f.; Burrows 1979, 494 ff.; more recently, Shibata 1981, 400 ff.; Sims1981, 395 ff.; Baumol/Oates 1988, chap. 12, among others. In the German-language literature esp. Kötzle1980; Ewringmann/Hoffmann 1978; Gawel 1991, 46 ff., 1993.57 On this, already Kneese 1964, 90 ff.; similarly, Kamien/Schwartz/Dolbear 1966a, 1966b; Freeman 1967;Burrows 1979; Shibata 1981; Sims 1981, among others.

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This makes it hard to understand why Frey, against the background of the politico-economic impli-cations of the crowding-out effect, inter alia advocates subsidies in environmental policy, “whichmay appear to be less efficient than tradeable licenses, but suggest that it might be good to preservethe environment and, in this way, support and promote environmental ethics.”58 This clearly con-tradicts not only the derivation of the crowding-out effect, as proposed by Frey himself, whichessentially rested on the material reward of desirable behavior; it is also inconsistent with the dif-ferentiation undertaken here between direct rewards and indirect cost incentives. Why the verysubsidization of desirable activities, as opposed to the previously derived crowding-out pattern,should now be seen a priori as “non-controlling” and “intrinsically reinforcing”, remains a mystery.If there is such a thing as a crowding-out effect in environmental policy, it seems that subsidies areprecisely the instruments for which the supposed “hidden costs of reward” (Lepper/Greene 1978)could become significant. The fact that, with an unchanged cost-benefit balance, the result in be-havioral terms happens to be not invariant with respect to the form of the incentives presented, isemphasized not only in the discussion on intrinsic motivation; it has also been shown in analyses ofbehavioral abnormalities (e.g. in terms of the lower estimate of opportunity costs as compared todirect cost) – see e.g. Thaler 1980; id. 1992). It could thus be said that, also from the point of viewof environmental ethics, subsidies must be considered the least suitable instruments for the realiza-tion of a rational, incentive environmental policy.59

The previously discussed strategy and profit-taking effects could, moreover, occur especially in thesolution of NIMBY problems, which are frequently cited as empirical evidence for a weakening ofintrinsic motivations.60 The fact that compensation offers lead to strategic behavior concerning therevelation of nonobservable benefits or costs has been known for some time from the discussion onnegotiating mechanisms following Coase 1960 (see e.g. Endres 1976, 74 ff.). The withdrawal froma (demonstrated) willingness towards cooperation and avoidance under the impact of monetarycompensation can be explained in this connection entirely without intrinsic elements.Frey/Eichenberger 1997, 750, take up this objection, but nevertheless dismiss the profit-takingeffect61 because it could not be proved in surveys, and because opposition to locally undesirableprojects - in conjunction with a complete lack of compensation offers - had not been maximal. Itremains to be seen whether surveys can serve to detect strategic motivation, that is, whether bymerely asking questions, actors will out themselves as calculating individuals seeking to maximizecompensation. The reference to an absence of opposition to projects when compensation offers arelacking is not convincing, however:62 Where no compensation is offered, opposition and wait-and-see attitudes do not make sense. These are only activated by options on payments or other benefits.Even a single offer of compensation shows that, with sufficient opposition, (additional) compensa-tion can be obtained. When, in this game of threats and counterthreats between government andlocal communities, the exit option of a local authority is faced with the (convincing) threat of agovernmental location directive, other behaviors are elicited than when a supplementary rewardcan be obtained by massive refusal, and the volume of payment is moreover dependent on the pre- 58 Frey 1997a, 109.59 See also the discussion of further instrumental implications in Gawel 1999b.60 See e.g. Frey/Oberholzer-Gee 1997.61 A signaling effect is eliminated as irrelevant in a similar way: By way of compensation, those receivingcompensation could feel reassured that the risks of a project are greater than first assumed and adjust theirclaims accordingly – similarly, Lübbe-Wolff 1999, 37.62 But similarly, Frey 1997b, 125: “This incentive [to strategic behavior, the auth.] should be highest, though,when no compensation is offered.”

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viously demonstrated resolution. Where compensation is not in sight, however, strategic efforts tohide true preferences are futile.

A possible, final objection concerning the relevance of problems of strategic preference might bethat an intrinsically motivated individual, in particular, might find it peculiar to be paid for his orher ethical stance. Any compensation would probably be rejected outright. But this contradicts themodeling of moral behavior in terms of an integrative utility function in which ethics happens to bea (negative) function of cost. For this reason, an ethically oriented individual will usually remainextrinsically “sensitive” and may, under the impact of high (opportunity) costs, abandon what haspreviously been considered morally desirable – strategic behavior and ethics thus need not be mu-tually exclusive.

Available analyses of the crowding-out problem do not sufficiently consider the influence of theform of external intervention, that is, the way in which a modification of the cost-benefit positionof the decision maker is effected. At any rate, “rewards”, which should be considered in a criticallight anyway, are not relevant for a rationally conceived environmental policy. The lack of motiva-tion that often occurs in connection with their use, which is regrettable in empirical terms can,moreover, be explained by profit-taking effects in the context of a model of “immature” humanbehavior.

d) Are there reinforcement effects in the environmental sector, too?Interaction between intrinsic and extrinsic motivation is not limited to “crowding-out”; rather, intheoretical terms, this relation has been characterized as essentially ambivalent. An examination ofpotential reinforcement effects appears essential therefore63, before far-reaching environmentalpolitical and instrumental conclusions can be drawn. The literature on intrinsic factors in the envi-ronmental sector, on the other hand, has so far not seriously addressed questions relating to the“crowding-out effect”.64 An obvious reason for this is that the debate on intrinsic factors has so fardiscussed only the impact of external interventions on the utility side of moral considerations, thatis, the question to what extent an individually perceived “utility” of intrinsically motivated action ischanged by extrinsic factors. Besides, the effect that external intervention has on the cost of moralbehavior also constitutes an important aspect: As the theory of low-cost decisions, in particular, hasshown, the chances of enforcing ethical motivations grow when their opportunity costs are reduced.But the fact remains that external interventions also, and especially, have an impact on these“moral costs”. Moreover, in an individual’s decision-making calculations, these cost effects, whencompared to “utility variants”, have the advantage of being empirically more easily observable.Whenever extrinsic factors reduce morally defined costs, however, reinforcement effects are likelyto occur.

In particular, such a reinforcement mechanism will come into play where the cost of acting in ac-cordance with intrinsic motivations is significantly reduced by environmental policy measures: Anindividual who, out of a personal commitment to preserve the environment, has kept to a fixedspeed limit on motorways may see his or her idealistic motives challenged when the majority, due alack of external sanctions and speed checks, indulges in the thrill of speed and moreover reach their

63 On this in detail, Lübbe-Wolff 1999, 40 ff., who focuses on the functions of environmental law and consid-ers their potential for “making an environmental ethical behavior possible in the first place”.64 See e.g. Frey/Oberholzer-Gee 1996, 221 ff.; Frey 1997a, 15 ff. In contrast to the extensively treatedcrowding-out effect, the reinforcement effect is not considered in these works.

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destination much faster. Would it discourage eco-minded protagonists if a general speed limit wasintroduced (or could a certain price be imposed on speed)? Would a motivated individual perceivesuch an external intervention as a kind of “disciplining” or “tutelage” – or would this rather rein-force his or her belief in doing the right thing? By contrast, it may become much easier to “liveout” an intrinsic motivation, once the notion of suffering disadvantages because of environmentallyconscious behavior compared to others (less concerned about the environment) is eliminated as aresult of a generally applicable rule or law. Such a “reinforcement” is described by Lübbe-Wolff1999:

“In addition to the existing intrinsic motive, there is now another, and the moral effort investedin driving more slowly, which especially consists in being constantly overtaken by others lesswilling to make this effort, is reduced by a legal rule because, and insofar as, this (factually)generalizes the principle of driving slowly. And for many others, who have not yet decided infavor of reducing speed, although the good sense of doing so does not escape them, this legalgeneralization removes the obstacle blocking their ethical motivation to drive at a more moder-ate speed, namely the freedom of all the others to drive faster.”65

The scenario presented here in the form of “anecdotal evidence” is well-known from empiricalanalyses of human behavior in social dilemmas: The works of Kelley/Grzelak 1972, Ko-morita/Sweeney/Kravitz 1980, and Bruins/Liebrand/Wilke 1989 describe two central mechanismswhich may impede intrinsically motivated, morally cooperative behavior: “fear and greed” – thefear of being exploited by others, and the “greed” to enjoy the “fruits of amorality”. Whereas inter-vention in the form of an extrinsic incentive primarily targets “immorally minded” individuals,thereby reducing their “exploitation reward” (and “amorality bonus”) because they now have toconform to a generally binding regulation, “morally minded” individuals are highly motivated tofollow their intrinsic motivations. The reinforcement of moral behavior when exploitation byamoral agents is excluded, or when a number of other morally behaving actors66 are to be expected,is a familiar finding of the empirical research done on dilemma situations. It possibly describes aneffect that generates a moral element for the benefit of an environmental policy whose declared aimis to raise the cost of environmentally hostile behavior, thus automatically increasing the quota of“environmentally friendly” actors: This reinforcement mechanism of extrinsic incentives should beeffective especially with respect to interventions which sanction deviating behavior (taxes, licenses,liability, command-and-control measures etc.).

Since, as assumed, intrinsic motivation and extrinsic intervention aim at directing individuals’behavior in the same way, crowding-out can only occur when an individual perceives interventionas an inappropriate attempt (that controls, disciplines, exonerates from responsibility, or may evenbe “patronizing”) at inducing something that, to individuals who are already motivated, is self-evident anyway. In this connection, it could be crucially important whether an action based on ba-sic intrinsic motivation receives an immediate extra reward or, rather, whether its non-observanceis sanctioned – as in the speed limit example – which would also be characteristic of solutions in-volving economic pricing. For the neoclassic homo oeconomicus it would, of course, be irrelevantwhether relative prices have changed because one option now carries an additional reward or fol-

65 Lübbe-Wolff 1999, 42 f., referring to empirical findings quoted in Nunner-Winkler 1994, 142. In the con-structed speed limit example, ethical motivations do not become irrelevant even after the introduction of theregulation since the strength of intrinsic motivation can be assumed to remain decisive in determining to whatextent the regulation is being enforced/implemented or not, or how much willingness there is to respect it.66 On this, already Sudgen 1986, 173; Frank 1987, 1988.

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lowing an increase in the cost of appropriate alternatives: The allocative effect would be identical,ceteris paribus. It is possible, though, that a “psychologically disposed”, real individual may drawother conclusions in these circumstances, taking a different position when “goods of a specialmoral quality” are involved (Gawel 1997, 495 ff.). There is ample evidence for this in the broadspectrum of anomalous decisions.67

Whether ultimately, a – mostly symbolic - prohibition of “unauthorized waste disposal” wouldfrustrate and diminish the motivation of the very individuals who have never even thought aboutdumping their waste at the roadside or in the woods, seems questionable. Why should extrinsicpressure on those “unwilling to be reasonable” not rather be regarded as reinforcement – tending inthe same direction - of what another individual “considers right”? At any rate, the notion that thoseintrinsically “frustrated” by a governmental law would in future base their decisions regarding dis-posal only on (external) cost-benefit considerations and hence also engage in unauthorized wastedisposal appears absurd, to say the least.68 The burden of ecologically correct behavior carried bythose who are intrinsically motivated should become much lighter if, and when, by virtue of a gen-eral prohibition, it is no longer permissible for anyone to benefit from ecologically incorrect be-havior.

3. Under what conditions does a conflictive interaction of extrinsic and intrinsic factors have adetrimental effect on target achievement?

a) The problem of normative ambivalence to the intrinsic impulse to actIntrinsic motivation is in principle normatively ambivalent: Whatever individuals do when follow-ing an intrinsic motivation may be “good” or “bad” in moral terms.69 Hence, intrinsic motivationsto act are not, a priori, deserving of protection. For the same reason, intrinsically motivated, eco-conscious action, even when understood as “ecological”, need not serve the target at all. It is farmore likely that extrinsic intervention in behavioral conflicts must seek to prevail, especially whenit conflicts with intrinsic motivation. It is irrelevant in this connection, whether the “intrinsic” im-pulse occurs when there is an awareness (which would then have failed) of “ecological correct-ness”: Someone who, despite innovative plastic packaging techniques, “for the good of the envi-ronment” still prefers a recycling logistics, which requires intensive use of energy and water, and isready to pay a higher price for this, may be intrinsically motivated, but does not act ecologicallycorrect: The intrinsically induced action has contributed nothing toward achieving the target, ordone so only in a limited way.

The aspect of normative ambivalence leads us to conclude that not every conflictive interactionbetween external and internal motivations, insofar as it entails a crowding-out of the intrinsic moti-vation, constitutes a failure to achieve the target and should be deplored.

b) Does crowding-out jeopardize the achievement of the environmental policy target?

67 On this, e.g. Thaler 1992; Eichenberger 1992.68 Lübbe-Wolff 1999, 40, also focusing on the concrete consequences of the crowding-out hypothesis in thefield of waste, states: “These scenarios are so far removed from reality that one is embarrassed to bring themup for discussion at all.”69 See e.g. Vanberg 1997, 170 ff.; on this, also Gerecke 1999, 16 f., who, for this reason, rejects a morality ofmotives (“Motivmoral”) based on the motives of actions as an unsuitable conception for the social sciences.The aspect of normative ambivalence is also broached by Frey, albeit only in passing – e.g. inFrey/Oberholzer-Gee 1996, 228, n. 14.

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An argument frequently put forward in the discussion relates to the disclosure of crowded-out in-trinsic motivation in a “post-intervention phase”, that is, after the disappearance of an additionalextrinsic intervention: Once the signal of prices or orders stops, even environmental ethics, havingbeen undermined in the meantime, can no longer ensure that the target will be achieved. In thecontext of environmental policy, it is clear that a sudden disappearance of supplementary extrinsicincentives does not constitute a meaningful scenario; in particular, a budgetary restriction, whichmay mean a drop in the intensity of extrinsic interventions as the principal’s level of income falls,can never be effective in our context, unlike the case where rewards are involved. More interesting,in terms of environmental policy, should be the effects that occur during the actual “interventionphase”, that is, when there is a simultaneous extrinsic impact on environmental users, but not dur-ing a – fictive, in this sense – “post-intervention phase”. But as long as the successful contributionof the extrinsic impulse merely takes the place of the intrinsic one, an immediate political implica-tion is unlikely, provided interest is initially focused on the effectiveness of the partial interven-tion.70 The immediate question concerns only the substitution between price effect and moral ef-fect: The “success” of an external intervention thus becomes a problem of the “motivational sub-stitution rate”: If this is (the absolute value of) 1, it should remain unproblematic in terms of envi-ronmental policy; by the same token, a rate exceeding (the absolute value of) 1 may appear criticalin environmental policy terms, but is hard to explain theoretically. Such an “over-crowding-out”71

would presuppose that the relative price effect would, in the long run and generally, be over-compensated by the (negative) moral effect – neither possibility is plausible, though:

Someone who speaks of “crowding-out” in relation to environmental policy has not only to de-scribe the socially psychological “how” of the mechanism, but must also explain why the precondi-tions of such an effect are created in the first place. Put differently: He or she must be able to ex-plain why the principal (additionally) introduces a price signal or arranges for a price increasewhen the agent’s inner motivation is apparently functioning. It seems a rational explanation is pos-sible only if the agent’s desired level of activity is considered insufficient, or – taking a superindi-vidual position - intrinsically induced, successful contributions vary (considerably) among indi-viduals with the result that, in the aggregate, the target remains unfulfilled, which is then to beremedied with supplementary incentive means.

Someone who has been “voluntarily”, that is, without any identifiable extrinsic incentive, returningcertain (moderate) amounts of packaging material to a designated collection point (and in this wayfeels rewarded for his or her effort by a sense of having done the ecologically correct thing), will,under the impression of a newly introduced obligatory deposit system, probably reach his or her(new) economic optimum and make the quantity and regularity of returned materials dependent ona balance between the arising marginal cost and utility, which now includes the new obligatorydeposit. It is true that the original intrinsic motivation may become weaker in this process, that is,an abolition of deposits would not reestablish the former level of collection and return activities;but does the new optimum fall short of what used to be expected when intrinsic subsidiary incen-tives were irrelevant? This may be so in the individual economic analysis of one, highly motivatedindividual; but, just here, the supplementary introduction of external intervention (through pricing)makes no sense. If, on the other hand, we take a collective of differently motivated individuals

70 Similarly, Lübbe-Wolff 1999, 37. But certain intrinsic values of morally induced behavior may also besignificant – on this, see chap. IV.3.c.71 See e.g. Frey 1993, 652: “Provided the motivation-crowding and spillover effects are sizeable enough,‘overall’ environmental quality will fall when pricing instruments are used.”

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whose activities fall short of the target, the price effect will induce subjects who are less well moti-vated to engage (for the first time) in collection and return activities. In short: Aggregated crowd-ing-out effects resulting in a negatively inclined reaction curve are improbable due to an offsettingamong individuals of crowding-out and -in effects.72 The fact is that, the lower the basic intrinsicmotivation of the collective subject to intervention, the more urgent external intervention becomes.Thus, provided intervention does take place, the probability of any crowding-out effects worthmentioning is likely to be low. The possibility of the “intrinsic source” running dry (perhaps com-pletely), may be a potential result of rational environmental policy, albeit irrelevant to achievingthe target; by contrast, a reversal in the sense that the success of an economically rational environ-mental policy involving intrinsic factors – although these may be restrained or crowded out – mightbe smaller than in case of a complete absence of eco-conscious intrinsic motivations (that is, with-out any intrinsic factors) does not appear plausible.73 It looks at least as if the intrinsic part of be-havior, which is assumed to be small anyway, might be offset by appropriate extrinsic factors (seepart c)).

If environmental policy had precise quantitative expectations, supported by environmental eco-nomic forecasts, regarding the effect of an obligatory deposit, to take a relevant example, it mightbe disappointed to find that this effect cannot just be added to what has already been accomplishedin terms of basic target achievement. The fact that a linkage of successful contributions from moti-vational sources proves unfeasible or, if not, only in a non-additive way, may be considered negli-gible by a theory of intervention that has so far failed to acknowledge the existence of a motiva-tional source outside its established range of incentives. To this extent, a limitation of effects mightresult, albeit there would be no need to revise the theory itself since a successful contribution “fromindividual intrinsic strength” in relation to the “detrimental potential” of subsidiary intrinsic moti-vations remains invariant: In principle, the crowding-out mechanism is a problem of dependency,not interdependence.

c) The absolute limit of the crowding-out effectBut even with existing, and possibly significant, intrinsic factors and a substitution rate (with anegative marginal overall result), which is problematic in terms of a policy of intervention, there isan absolute limit to the implications of the crowding-out mechanism, theoretically speaking: As theintrinsic impulse to act cannot be crowded out beyond zero, the price effect tends to prevail again ata certain level of reinforcement of external incentives because complete crowding-out has oc-curred. The fact that the crowding-out effect is ultimately a question of the intensity of extrinsicincentives is also conceded by Frey (1997, 41):

“The crowding-out effect that has been discussed in this book could be considered unimportant,if the decline in intrinsic motivation it causes can be offset by a more intensive use of price-oriented instruments. This criticism is particularly relevant, when intrinsic motivation has beencompletely crowded out and all that remains is the price effect. If we take environmental policy,for example, a decline in the environmental ethics following the use of monetary environmentalinstruments could be remedied by an increase in environmental taxes or stricter environmentalregulations.”

72 On this, in a theoretical model, Gawel 1999a.73 But see the four cases table in Weck-Hannemann/Frey 1995; Weck-Hannemann 1999, 79 ff., which couldsuggest this. See on this Gawel 1999a.

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The model of the reaction curve (see Gawel 1999a) demonstrates that the supply function suddenlybends (again) and from then on shows an increase in prices (i. e. the normal course). The compen-sation of the crowding-out effect by increasing the intensity of price intervention can be expectedto be more successful to the extent that intrinsic motivations are regarded as a “category of lowutility”, which can in any case only prevail in “low-cost situations”. When external incentives arenoticeably increased, compensation for a lacking “low-cost contribution” will be relatively easy.This is even more true of the result of a collective action by an aggregate of individuals whose in-trinsic motivations vary in strength: In this case, crowding-out effects (if present) and price effectsmeet, virtually offsetting each other through aggregation. Accordingly, the desired effect of a rein-forcement of external incentives will, as anticipated, be clear-cut.

As the crowding-out effect gives little cause for concern overall, in terms of a policy of interven-tion, Frey and his coauthors have recently been referring to the spillover effect which may crowdout environmental ethics even where it cannot easily be compensated for. Regarding the irrelevanceof crowding-out merely with respect to intervention, two further arguments74 have been introducedinto the discussion:- Intrinsic motivation is an intrinsic value, that is, with the substitution of internal by external

factors “something” is lost, even when the level of target achievement remains the same;- the intensification of governmental intervention required due to crowding-out means higher

cost, that is, the same level of target achievement becomes more expensive in overall economicterms. Moreover, the losses incurred in the process far exceed the higher intervention cost in-curred by the government (e.g. additional costs of the tax system, negative personal distributioneffects of higher prices etc.).

Whether and to what extent “intrinsic values” of ethics should play a role in economic analysis is amoot point. It may turn out that – similar to the “intrinsic values of nature” - they merely refer toderivative aspects of the target and do not merit a value category of their own.75 Moreover, the“intrinsic value” argument apparently also refers to remaining influences exogenous to the modelwhich may be meant to define “losses” beyond the immediately affected efficiency of environ-mental policy in terms of intervention – possibly accompanying an erosion of environmental ethics.The “spillover mechanism” itself would probably be such an exogenous aspect. If further “intrinsicvalues” of ethics are postulated, however, the formulation of a corresponding hypothesis of thesupposed additional “losses” would be desirable – in other words, a specification of the type andextent of assumed further costs of a weakened moral stance; but this is still outstanding.

Theoretically, the cost effects of higher degrees of intervention are ambigous (see Gawel 1999a);furthermore, their impact crucially depends on the empirical relevance of crowding-out constella-tions, which is being challenged here.76 Therefore, only a general discussion of “spillover effects”is provided in the following section V.

74 See Frey 1997a, 106 f.75 On this, see also the examples in Frey 1997a, 106, where a higher creativity of intrinsically motivatedbehavior is discussed. If an individual, based on his or her own impulse, values an action more highly, thiswill be reflected in his or her utility function and accordingly modify the comparative performance of “eth-ics” as an intervention in the principal-agent model. This may be an “intrinsic value”, but does not transcendthe discussion of the model; to this extent, it is endogenous and does not automatically justify an additionalconsideration of “intrinsic values”.76 But offering more differentiation, Gawel 1999a.

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V. On the role of the spillover effect

1. The problem of the existence of negative spillover effectsMotivational influences relevant to other sectors than those immediately subject to intervention(“spillover”) may, in principle, be positive as well as negative, due to the theoretical ambivalenceof the interaction of intrinsic and extrinsic motivations. To begin with, let us look at potentialnegative spillover effects. Such an effect would be of special significance, if an erosion of generalenvironmental ethics follows from an undermined intrinsic motivation in partial sectors subject tointervention by incentives. The former’s importance to a successful environmental policy must notbe underestimated, which has been briefly discussed in section II.2: Environmental ethics is re-quired for the articulation of interests in environmental protection in elections and votes, for thestabilization of behaviors that are in conformity with social rules and laws, as well as for an inter-vention in sectors seemingly inaccessible to the price mechanism (or command-and-control).

If an erosion of ethics that is problematic in terms of environmental policy is to be explained as aresult of external governmental intervention by “spillover effects”, the source of the spilloverwould first need to be shown, considering that the relevant practical spheres of conflict affected by“crowding-out” can be assumed to be extremely limited, as described earlier. Moreover, as far asadherence to norms, in particular, is concerned, it would have to be explained why a basic intrinsicmotivation originally designed to serve environmental protection not only diminishes under theimpact of an erosion of ethics that has spilled over, but changes to “environmental aggressiveness”and may even be unable to guarantee the observance of extrinsic systems of rules for the protectionof the environment.77 It would also have to be explained why, especially in the domain of rule en-forcement, “reinforcement effects” are not effective, as suggested by empirical studies of the sus-ceptibility of moral exposure to exploitation (chap. IV.2.d.).

Moreover, one the on hand, there is a rational choice model based on an ethical stance of individu-als, which is still sensitive to prices and cost and calculates values for all kinds of costs and bene-fits; on the oher hand, there is the notion of a universal and indivisible ethics, as portrayed in thecontext of “spillover scenarios” - an ethics which, when coinciding with external influences onbehavior, is moreover at risk, at least in the short term, of being lost forever. Can this be still con-sistent with the actual preconditions of the model?78 In economic terms, an intrinsically foundedethics merely represents a “raw” and unweighted expression of preference which has yet to assertitself in a cost-benefit calculation. As a “category of low utility”, environmental ethics often re-mains hidden in this process as, in the final analysis, it does not guide action. However, such a con-stitution of ethics tells us neither whether ethics, when coinciding with “commercialization”, auto-matically disappears nor whether it make a universal claim to validity, that is, without any situ-ational variation or even limitation (that is, in absolute terms). In brief: The implicit assumptionsregarding the universality of moral attitudes as well as the irreversibility of their erosion seem to bein need of further reflection, especially against the background of the rational choice model of indi- 77 The example of unauthorized waste disposal needs to be recalled here: A “holistic” environmental ethicswhich has been undermined by environmental taxes or licensing schemes could not even guarantee that apreviously eco-conscious individual now pays attention to a prohibition of unauthorized waste disposal (dueto lack of control).78 Frey himself mentions certain “criteria of affinity” for the source and target of spillover (e.g. Frey 1992b,406) which favor the latter. Underlying them, however, is the older, conventional psychological concept ofan indivisible and absolute morality.

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vidual behavior itself: There can be no doubt that the construction and destruction of ethics proceedasymmetrically (“Morality is destroyed more easily and rapidly than it is constructed.” – Frey1997b, 119); but whether and to what extent an irreversible loss of the entire (environmental?) eth-ics would result from a diminished ethics induced by crowding-out, seems entirely open to ques-tion.

2. Positive spillover effects:On the role of extrinsic interventions in the formation of “moral capital”

The study of undesirable interdependencies between intrinsic and extrinsic motivations should notcause us to overlook that extrinsic interventions may also have a positive effect on intrinsic moti-vations, although, in this context, the reference is not so much to the possibility of a spilled overreinforcement effect as to the primary (formative) process of intrinsic motivation: This does notemerge suddenly “from out of nowhere”, but nor can it be attributed entirely to an over-positive,anthropogenetic disposition.79 The fact is that, in the process of socialization, every individual un-dergoes an extensive internalization of (initially external) social norms, that is, social expectationsof certain behaviors which are internalized as part of one’s self.80 In this process, an extensive useof “extrinsic motivation techniques” is brought to bear (social rewards, threats of sanctioningetc.).81 “Once an internalization of norms has taken place – one speaks of the conscience as an in-ternal controlling and sanctioning agency – a considerable resistance may be formed to materialand social incentives which impact on the individual from outside.”82 There is no doubt that, underthe impact of extrinsic influences, moral capital is first formed and then reinforced.

What is the significance of this in the environmental context discussed here? Against this back-ground, an environmental policy oriented toward incentives and regulation, which has, since the1970s, become increasingly established, has played a crucial role in generating an intrinsic motiva-tion to protect the natural foundations of life. This is highlighted by the fact that eco-consciousnessand an intrinsically motivated concern for the environment do not constitute a pre-social element ofthe human conscience, but have been achieved only in recent decades in a gradual change of val-ues. The need to treat the environment with care, even when this not motivated by individual ad-vantages, has no doubt been anchored in the public mind, not least due to a massive governmentaleffort on behalf of public goods considered worthy of protection. Knowledge and conservation ofthe environment as building blocks of environmental awareness (Kuckartz 1998) are by no meansindependent of governmental intervention. But the contribution of external intervention to the for-mation of an intrinsic moral capital has so far been neglected, although there is sufficient evidenceof this aspect in the environmental sector.

Whether determined governmental action in support of environmental protection encourages theundesirable delegation of individual environmental responsibility to the public authorities (risk ofdiminishing eco-awareness), or whether, conversely, it only reduces the private cost of an heroicethical environmental commitment to realistic levels by making it clear that environmental protec-tion constitutes a worthy cause for all those of good will and will therefore be effectively general-

79 On this, synoptically also Kirchgässner 1996, 240 ff.80 On this ontogenetic process of the internalization of moral norms, see Kohlberg 1984. Trivers 1971 evenconsiders this internalization an anticipation of social sanctions for the case of rule breaking.81 The interrelatedness of norms, their internalization, and the resultant intrinsic motivation are described inColeman 1990/91, 311 ff.82 Gerecke 1999, 2.

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ized as a principle, will ultimately be an empirical question. In this context, the potential of “spill-over mechanisms” should not be overlooked, however. The question that arises is whether frustra-tion on the part of individuals with an ethical concern for the environment is due to an environ-mentally oriented government that credibly intervenes via command-and-control measures or in-centives, , or rather to an indifferent government, or even one that operates with double standards,thereby hinting that environmental protection is certainly a noble cause, but one ultimately to beleft to those “stupid” enough who are willing to be exploited. The potential motivation-reducingeffects of “surrendering responsibility” to an environmentally committed government that inter-venes in a comprehensive way, on the one hand, and the moral “sclerosis” due to substantial re-wards for exploitation and amorality under a laissez-faire government, or one that merely makessymbolic policy on environmental protection, on the other, lead us back to the question mentionedearlier of the relevance of external intervention for the cost and benefit of environmental ethics.

VI. Conclusions

Generally, a crowding-out of ethical motivations can be expected to occur only– if, that which is to be crowded out, actually exists and has played an appreciable role,– if there is any chance of extrinsic and intrinsic motivations coinciding,– if external intervention does not exert a constructive effect (i.e., a reinforcement effect) in the

interaction of multi-motivational structures,– and the conditions additionally required for a genuine destruction are present,and insofar as– a weak motivation due to the disappearance of external incentives (or occurring while the latter

are ongoing) cannot be attributed to other causes involving extrinsic incentives (e.g. profit-taking effects, signaling).

Such crowding-out becomes relevant in terms of an intervention policy only insofar as– that which has been crowded out operates in the same direction affecting the target, that is, its

erosion is generally to be regretted.– the motivational substitution rate shows an absolute value above 1,– the extrinsic factor remains uncertain and is likely to disappear again later,– even irrelevant crowding-out acquires importance by spilling over to other, problematic areas.In principle, it has to be stated critically that– first of all, according to recent findings, the socially psychological existence of crowding-out

mechanisms is clearly uncertain; at least it can be relevant only in a limited way;– crowding-out of intrinsic motivations does not automatically say anything about their social

desirability;– apart from crowding-out, reinforcement and crowding-in need to be taken into account, too.With regard to environmental problems, it is probably true that– the empirical relevance of intrinsic motivation in the environmental sector is rather limited and

applicable only to low-cost situations, such as private households;– as a rule, crowding-out and spillover scenarios appear implausible;– crowding-in effects, on the other hand, seem to be rather substantial, especially if the impact of

external interventions on the cost of environmental ethics and the individual genesis of moraland legal commitments are taken into account.

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The literature on the problem of intrinsic factors in the environmental sector gives the impressionthat a premature recourse to intrinsic motivations is often sought, which “does not exhaust the ex-planatory potential of an economy which deliberately avoids acknowledging the role of a hard-to-observe quantity, namely ‘intrinsic motivation’” (Gerecke 1999, 3). Apart from “conceptual ambi-guities” or imperfections (ib.)83, the search for negative effects of interactive influences is also tooone-sided and the result, in terms of evidence, too meager.

This is not to deny that general considerations concerning the intrinsic motivation of human be-havior do provide instructive and valuable insights into environmental policy and that ethics playan important role in human behavior. But they give no grounds for a fundamental revision or re-consideration of current recommendations made by environmental economy on the choice of envi-ronmental political instruments. To a rational environmental policy, intrinsic factors are, all in all,unlikely ever to be truly relevant for a rational environmental policy intervening in price relations.84

Ultimately, to overemphasize crowding-out and negative spillover scenarios will encourage unnec-essary irritations regarding the instrumental appropriateness (and ethical quality) especially of arational environmental policy based on incentives.

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