Traps and incentives

Eran Manes, Daniel Shapira, Yossi Tobol

Research output: Contribution to journalArticlepeer-review


Many theories of development traps rely on coordination failures. In this paper we develop a theory of incentive traps in organizations, which demonstrates how the provision of incentives may itself become reinforcing for the emergence of traps. Our theory marks the dynamic interplay between incentives and performance in teams where peer-effects are present, the returns to which accrue far beyond the career horizon of current cohort of agents, while taking into account both intergenerational learning dynamics and the existence of markets for talent. The theory may help explain why high-quality research is rewarded less in those institutions where it is mostly scarce, why relative wages of professors in some developing countries are significantly lower than in developed economies, or why governments expenditure on education as percent of GDP is substantially lower in LDCs as compared to developed economies.

Original languageEnglish
Article number20160036
JournalB.E. Journal of Theoretical Economics
Issue number2
StatePublished - 1 Jan 2018


  • development traps
  • incentives
  • organizations

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)
  • General Economics,Econometrics and Finance


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