Current reforms in the public sector are characterized by the introduction of businesslike incentive structures, in particular the introduction of “pay for performance” schemes in public institutions. However, the public sector has some specific characteristics, which might restrict the...

There is a controversy about the finding that performance-contingent rewards undermine intrinsic motivation. While standard economics states that pay-for-performance increases work efforts, psychological economics counter that it sometimes weakens work efforts. We show both predictions are valid...