Incentive

An incentive is anything that persuades a person or organization to alter their behavior to produce a desired outcome. Incentives are widely studied in personnel economics, where researchers and human resource managers examine how firms use pay, career opportunities, performance evaluation, and other mechanisms to motivate employees and improve organizational outcomes. Higher incentives are often associated with greater levels of effort and higher levels of performance. In comparison, disincentives discourage certain actions. Incentives encourage specific behaviors or actions by persons and organizations, and are commonly employed by governments, businesses, and other organizations. Incentives may generally be divided into two categories: intrinsic and extrinsic. Incentives, however, can also produce unintended outcomes, relating to the overjustification effect, principal–agent problem, moral hazard, free-riding, or adverse selection.