Financial incentives to change behaviour: To what extent are they effective?

Imagine that you want to convince people to reduce their car-use and switch to using public transport. What would you do? In policy-making, financial incentives have long been debated to be effective means to change behaviour. Indeed, based on economic theories, one could argue that when you make the public transport cheaper, then people would be inclined to use this in order to increase their financial gains. Recent research, however, argues that financial incentives are not always effective to stimulate behaviour change.

• Hence, once the financial incentive is removed, people are likely to fall back into their previous habitual behaviours.

• There is not enough empirical evidence suggesting that financial incentives would be effective in the long-run.

• Financial incentives make people externally motivated to change their behaviour instead of internally motivated.

• Financial incentives or pricing policies might be effective as an initial kick (motivator) to break (car) habits and change commuting behaviour.

Financial incentives or pricing policies have been frequently used by policy-makers in interventions aimed at changing car-use habits. Pricing policies generally aim at reducing the financial costs of using the more environmentally-friendly means of transport or increasing the financial costs of environmentally-harmful modes (Thogersen, 2009; Schuitema & Steg, 2008). In one particular study, Danish car-owners were given a voucher which allowed them to travel with public-transport for a full month for free (Thogersen, 2009). The idea was to break their car-habit, encourage them to try the new mode, and to help them develop positive associations regarding the use of public transport, such as regarding the quality of service and the convenience of the service. Findings revealed a positive effect of the intervention on the frequency of using public transport.

Notably, the price promotion led to an increase in the use of public transport which was twice the use of public transport before the intervention. Importantly, the positive influence of such a kick in breaking the old habits of using a car lingered for a period of five months after the intervention. This suggests that promoting the use of public transport by making it financially appealing to car-owners could lead to more long-term changes in transport behaviour even after the financial incentive is removed (Thogersen, 2009). However, there are studies that challenge this, suggesting that providing incentives does not always work as intended, and might only be effective in the short-term.

For example, in one particular study, drivers were given a discount on their insurance if they adopted an environmentally-friendly and safe driving style by driving under the speed limit (Bolderdijk et al., 2011). Their driving behaviour was observed via GPS devices. It was found that drivers indeed reduced their speed, and engaged in fewer violations as compared to another group of drivers who were not given a discount on their insurance. Interestingly though, when such financial incentive was removed, there was an increase in the number of speeding violations, and eventually, the difference between those who were provided with a financial incentive, and those who were not given a financial incentive vanished. This finding indicates that it might be very difficult to have long-term behavioural changes with short-lasting financial incentives.

Importantly, such incentives seem to overcrowd intrinsic motivation (see Frey & Oberholzer-Gee, 1997; Deci & Ryan, 1985) to act normatively, thereby strengthening the extrinsic motivation to exhibit the desired behaviour only because of the financial incentive. When the financial outcomes are removed from the picture, individuals are likely to fall back to their habitual and non-normative behaviour. Long-term behaviour change in making people act safely and sustainably might be more feasible by making the normative goals active (link to Green Mobility insight).

  • Bolderdijk, J.W., Knockaert, J., Steg, E. M., & Verhoef, E. T. (2011). Effects of Pay-as-you-drive vehicle insurance on young drivers’ speed choice: Results of Dutch field experiment. Accident Analysis and Prevention, 43 (3), 1181-1186.
  • Deci, E. L. & Ryan, R. M. (1985). Intrinsic motivation and self-determination in human behaviour. New York: Plenum Press.
  • Frey, B. . & Oberholzer-Gee, F. (1997). The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding- Out. The American Economic Review, 87 (4), 746-755.
  • Thogersen, J. (2009). Promoting public transport as a subscription service: Effects of a free month travel card. Transport Policy, 16, 335-343.
  • Schuitema, G. & Steg, L. (2008). The role of revenue use in the acceptability of transport pricing policies. Transport Research Part F, 11. 221-231.

Leave a Reply

Your email address will not be published.