Something is wrong with economics. There is a significant discrepancy between how people behave according to the models of economists and how they behave in real life. Part of that discrepancy occurs because people do not respond to carrot-and-stick motivation in the expected manner, according to Daniel Pink in his book Drive: The Surprising Truth About What Motivates Us. Instead, people often do things out of curiosity, or generosity, or for some other “irrational” reason.
Businesses almost universally attempt to motivate employees using rewards and punishments, without realising that these can extinguish intrinsic motivation. People who donate blood out of generosity will often refuse to donate if payment is offered, as the payment cheapens the act. Similarly, rewards and punishments can diminish performance instead of improving it, they can crush creativity, crowd out good behaviour, encourage cheating, become addictive, and foster short-term thinking.
The book goes on to describe “Type I” behaviour, where virtuous conduct occurs because of intrinsic motivation rather than as a result of external pressures. The author explains ways of creating intrinsic motivation and provides a “Type I Toolkit” for putting the ideas from the book into action. The book is easy to read and it addresses a topic which is of critical importance to businesses, so I highly recommend it.