Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Course Subjects
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Economic Analysis & Monetary Policy

Economic Incentives - Explained

What are Economic Incentives?

Written by Jason Gordon

Updated at March 26th, 2023

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

What are Economic Incentives? 

Incentives are factors that motivate individuals in their actions or inaction. In economics, incentives are generally related to value and utility. 

What are Extrinsic and Intrinsic Incentives?

Intrinsic incentives are internal in nature - not arising from external influences. We often regard intrinsic motivations as innate or in-born. The utility involved with intrinsic motivations comes from the action or inaction itself. 

 Extrinsic incentives regard external pressure or reward that accompanies an action or inaction. By their nature, they provide motivation for an action or inaction that is separate from the action or inaction itself. 

What are the Types of Economic Incentive? 

Economic incentives are generally used by government or private industry to stimulate activity by citizens or employees. 

The most common forms of economic incentive include: 

Financial - A financial incentive is a form of compensation. This might include a salary, bonus, or commission. 

Taxation - Providing a deductions, credits, or other rebates against tax obligations works similarly to compensation in motivating action or inaction. 

Subsidies - This is compensation in the form of partial assistance to cover the cost of activities or to purchase basic necessities. 

Negative Incentives - This is similar to negative reinforcement in that it removes a negative consequence that will occur in the event of an on-going course of action or with the failure to take action.  

Back to:ECONOMIC ANALYSIS & MONETARY POLICY

Related Topics

  • Budget Constraint
  • Radner Equilibrium
  • Opportunity Cost
  • Opportunity Set
  • Marginal Analysis
  • Utility
  • Self Interest
  • Cost-Benefit Analysis
  • Enlightened Self-Interest
  • Fisher's Separation Theorem
  • Ratchet Effect
  • Total Utility (Economics)
  • Efficiency Principle
  • Expected Utility
  • Subjective Theory of Value
  • Positional Goods
  • Utilitarianism
  • Indifference Curve
  • Time Preference Theory of Interest
  • Incentives
  • Marginal Benefit
  • Marginal utility
  • Diminishing Marginal Utility
  • Sunk Costs
  • Production Possibilities Frontier
  • Law of Diminishing Returns
  • Economic Efficiency
  • Efficiency Theory
  • Productive Efficiency
  • Capacity Utilization Rate
  • Allocative Efficiency
  • Pareto Efficient
  • Comparative Advantage
  • Criticisms of the Economic Approach
  • Behavioral Economics
  • Normative Economics
  • Positive Economics
  • Invisible Hand
  • Sunk cost
explained economic incentives

Was this article helpful?

Yes
No

Related Articles

  • U-Shaped Recovery - Explained
  • McCallum Rule - Explained
  • National Trade Data Bank - Explained
  • Contractionary and Expansionary Monetary Policy - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand