Markets, Motivation, & Welfare 


Lent 2017/18  

Teacher responsible:  Prof Maitreesh Ghatak


Brief description of the theme: The narrow self-interest driven view of individuals in the economic domain has increasingly come under question. Recent work in economics has moved beyond stylized models of motivation based on a narrow view of homo economicus who cares about only money and leisure, and have embraced a wider perspective on motivation. In this research seminar, we will examine various aspects of this broad theme.  The first lecture will look at how does motivation (whether due to moral values such as altruism and pro-sociality, reciprocity and fairness, social norms, reputational and identity concerns etc) interact with market forces – e.g., do market forces crowd out moral behaviour and should there be limits to markets? The second lecture will discuss the concept of altruistic capital as an asset that facilitates altruistic acts and that can be shaped by policies. This opens the possibility that an intervention that increases he returns to altruistic capital triggers a virtuous circle that leads to pro-social behaviour and the accumulation of more altruistic capital.  The third lecture will discuss how pro-social motivation and incentive pay interact in the context of public service delivery. The fourth lecture will examine the issue of how motivation is formed (e.g., a worker’s loyalty to a firm) and the possibility of strategic interactions in this context. The fifth and final lecture will look at social entrepreneurship. The traditional belief that markets are the most efficient way of producing private goods, while the government takes care of public goods and services while also correcting a range of market failures is no longer tenable. There is an increasing importance of private social-sector organizations such as non-profits, NGOs, and social enterprises. This lecture will examine how these organisations work, in what way they are different from standard (for-profit) firms, and how they survive in a market economy.  

Below you will find the link to an audio recording with slides from a recent panel discussion that will give you a bit of a background to the broad theme. It was a panel in which Nava Ashraf, Oriana Bandiera, and I participated at the British Science Festival in Brighton on September 7, 2017 titled “How Does Caring for One Another Affect Economic Decisions?”

This is a brief write-up on that panel:


The course will include lectures given by researchers from inside and outside LSE. The lectures will expose the students to research on the frontier in topics such as public economics, political economy and decision making in the public domain.

This research and background reading will then be discussed in seminars. The seminars will discuss the previous lecture as well as examining background reading related to the topic.

Each term will consist of a series of biweekly lectures (5 x 90mins) and seminars (5 x 60mins).

Lectures will be given by speakers on a specific topic, and will allow for the opportunity to interact and ask questions. 


Speakers (provisional)

All lectures except for the one by Nava Ashraf will take place at PAR.1.02 (Parish Hall on the LSE campus, room 1.02) from 18-19.30. 

Lecture 1 - January 11

Maitreesh Ghatak, Department of Economics, and STICERD, LSE.

Title: “Does Money Crowd Out Motivation?”

Lecture 2 - January 15 

Nava Ashraf, Department of Economics, STICERD, and The Marshall Institute, LSE

Title: “Altruistic Capital”

Please note different venue and time: due to scheduling constraints, this lecture would be held at this date as opposed to February 8 jointly with The Marshall Institute Lecture Series, and at a different venue - in the Old Theatre. The time is 18.45 – 20.15. The classes corresponding to this lecture will be held on January 25.

Lecture 3 - January 25

Oriana Bandiera, Department of Economics, and STICERD, LSE

Title: “Pro-sociality and Incentives for Public Service Delivery”

Lecture 4 - February 22

Michael Muthukrishna, Department of Psychological and Behavioural Science, LSE & Zaki Wahhaj, School of Economics, University of Kent.

Title: (Provisional) “Endogenous Motivation and Social Norms”

Lecture 5 - March 1

Stephan Chambers, The Marshall Institute, LSE.

Title: “Profit and Purpose: An Introduction to Social Entrepreneurship


This course is compulsory on the BSc in Philosophy, Politics and Economics. This course is not available as an outside option nor to General Course students.

This course is only available to second year students on the BSc in Philosophy, Politics and Economics.

The course will run from the beginning of Lent Term in year 2 and will continue as EC340 through to the end of Lent Term in year 3.


Students will be assessed throughout the course, through essays, presentations and class participation.

Students will be expected to produce 1 essay and 1 presentation in the LT.

Students will write a 2,500 word essays in groups in the LT of year 2 and MT of year 3 to prepare them for the individual assessment of year 3.

In addition, students will discuss and present current research.

Feedback on these essays and the presentation will help prepare students for the final individual essay and presentation.

There will be one essay and one presentation per term in MT and LT of the third year of the PPE.

The final summative grade will weigh together the presentations (20%), essays (70%) and class participation (10%) from all three terms (the essays will be weighted 15%, 15% and 40%, respectively).

The overall grade the students will receive will be one of four: fail, pass, merit and distinction.

LSE Course Guide


Background readings for Ec 240

(Provisional – will be updated)


Administrative information - My office is 3.08A in the third floor of  32LIF.  


My assistant is Rhoda Frith (, Ext 6674, 32 Lincoln Inn Fields, 3rd Floor, office 3.06. My office hours are Tuesdays 4 -5PM. They are walk-in but booking a slot minimizes the likelihood of waiting. Please book a slot using the spreadsheet here. Please email Rhoda Frith ( to book an appointment at a different time if the slot is full or you cannot make it for some reason.

For each lecture there will be a 2-3 readings that you are required to read. There will be a number of additional readings that are optional. In case you cannot get hold of the the Tirole or the Hausman et al book in the library, Rhoda will have a photocopy of the relevant chapter that you can borrow.


General Readings


Jean Tirole, Economics for the Common Good, Princeton University Press, 2017. (The introduction and Chapters 2 and 5 are excellent for how the discipline of Economics relates to broader public policy debates and that there is no presumption that economists are blind supporters of the free market).

Daniel Hausman, Michael McPherson, and Debra Satz, Economic Analysis, Moral Philosophy, and Public Polcy, Cambridge University Press, Third Edition, 2017. (An electronic version of the second edition of this book is available at the LSE Library)

Ravi Kanbur, "Economic Policy, Distribution, and Poverty - The Nature of the Disagreements", World Development, 29(6), 1983-1094, 2001. (An excellent summary of the core nature of disagreements between economists and non-economists.)

Sandel, Michael, What Money Cannot Buy - The Moral Limits of Markets, Allen Lane, 2012; (A modern classic – a non-economist’s critique of market economics).

Sandel, Michael, Justice- What's the Right Thing to Do, Allen Lane, 2009; (An excellent introduction to alternative approaches to welfare judgements).

Satz, Debra, Why Some Things Should Not be For Sale - The Moral Limits of Markets, Oxford University Press, 2010; (An excellent complement to Sandel’s book, often taking different positions.)

Rodrik, Dani, Economics Rules, Oxford University Press, 2015; (A great introduction to the methodology of using models in Economics).



Lecture 1 (Maitreesh Ghatak)


Slides - Ghatak




Michael Sandel (2012): "How Markets Crowd Out Morals - A Forum on the Corrupting Effects of Markets", Boston Review, May 1.

Timothy Besley (2013): "What’s the Good of the Market? An Essay on Michael Sandel’s What Money Can’t Buy", Journal of Economic Literature 2013, 51(2), 478–495.  

Maitreesh Ghatak (2009): "Buying Land and Selling Kidneys", Financial Express, 2009.




Michael Sandel (2012): What Money Can’t Buy: The Moral Limits of Markets. Allen Lane, 2012. Introduction and Chapter 3.

Jean Tirole (2017): “The Moral Limits of the Market”, Chapter 2 in Economics for the Common Good, Princeton University Press (copies have been ordered in the LSE library to be put up in course collections).

Ravi Kanbur, "On Obnoxious Markets", Working Paper, Cornell University, 2001. (A very insightful early contribution to the limits of the market debate).

Alvin Roth (2007), "Repugnance as a Constraint on Markets", Journal of Economic Perspectives,  21(3), Summer 2007, pp. 37-58. 

Daniel Hausman, Michael McPherson, and Debra Satz, Economic Analysis, Moral Philosophy, and Public Polcy, Cambridge University Press, Third Edition, 2017, Chapter 6.

Carl Mellström and Magnus Johannesson (2008): “Crowding out in Blood Donation: Was Titmuss Right?” Journal of the European Economic Association, Vol. 6, No. 4 (Jun., 2008), pp. 845-863.

Gary S. Becker and Julio Jorge Elías (2007): "Introducing Incentives in the Market for Live and Cadaveric Organ Donations", The Journal of Economic Perspectives, Vol. 21, No. 3 (Summer, 2007), pp. 3-24.

R. Benabou and J. Tirole (2010): "Individual and Corporate Social Responsibility," Economica, 77, 1-19, 2010.

Maitreesh Ghatak (2016): "A Critique of the Law Banning Commerical Surrogacy in India,", August 31, 2016.

Maitreesh Ghatak (2014): "Should all voluntary exchanges be legal? First version: September 2, 2014.


Lecture 2 (Nava Ashraf)


Slides - Ashraf



Ashraf, Nava and Oriana Bandiera. Altruistic Capital.”   American Economic Review: Papers & Proceedings 107(5), (2017).



Video of Nava Ashraf talking about Altruistic Capital -


Lecture 3 (Oriana Bandiera)


Slides - Bandiera




Oriana Bandiera and Julia Tobias (2015): "Hiring Do-Gooders or Go-Getters: Attracting talent to improve public service delivery", IGC Blog, 13 Jul 2015.

Oriana Bandiera, Kelsey Jack, Nava Ashraf (2012): "No margin, no mission? Motivating agents in the social sector",, 13 March 2012




Nava Ashraf, Oriana Bandiera, and Scott Lee (2016): "Do-gooders and go-getters: career incentives, selection, and performance in public service delivery", Working Paper, LSE. 


Nava Ashraf, Oriana Bandiera, and Kelsey Jack "No Margin, No mission? A field experiment on incentives for public service delivery"Journal of Public Economics,  2014.  


Nava Ashraf and Oriana Bandiera (2017): "Social incentives in organisations" in preparation for the Annual Reviews of Economics.

Gneezy, U. S. Meier and P. Rey-Biel (2011): "When and Why Incentives (Don't) Work to Modify Behavior." Journal of Economic Perspectives, 25, 4, 191-210


Francois, P.  and M. Vlassopoulos (2008): “Pro-social Motivation and the Delivery of Social Services”,  CESifo Economic Studies, 2008.


Timothy Besley and Maitreesh Ghatak: "Solving Agency Problems: Intrinsic Motivation, Incentives, and Productivity". Background paper for the World Development Report 2015, 2014.


Lecture 4 (Michael Muthukrishna & Zaki Wahhaj)


Slides - Wahhaj

Slides- Muthukrishna




G. Akerlof, and R. Kranton (2005): “Identity and the Economics of Organizations”, Journal of Economic Perspectives, 19(1), Winter.  

Chudek, Maciej, Michael Muthukrishna, and Joe Henrich (2015):  "Cultural evolution." The Handbook of Evolutionary Psychology.




Joseph Henrich and Jean Ensminger (2014): "Theoretical Foundations – The Coevolution of Social Norms, Intrinsic Motivation, and Markets, and the Institutions of Complex Societies".

Chudek, Maciej, and Joseph Henrich (2011): "Culture–gene coevolution, norm-psychology and the emergence of human prosociality." Trends in Cognitive Sciences, 15(5), pp 218-226.

Raquel Fernandez (2008): "Culture and Economics", New Palgrave Dictionary.

Alesina, Alberto, and Paola Giuliano (2015): “Culture and Institutions.” Journal of Economic Literature.


Lecture 5 (Stephan Chambers)


Slides - Chambers




J. Gregory Dees, “The Meaning of “Social Entrepreneurship”, Working Paper, 1998.


Porter, M. , Why business can be good at solving social problems, 2013.


Hansmann, Henry,  "Economic Theories of Nonprofit Organizations", in W. Powell ed. The Nonprofit Sector, Yale University Press, 1987. 




Hansmann, Henry,  "The Role of Nonprofit Enterprise", The Yale Law Journal, 89 (5), April, 1980.


Timothy Besley and Maitreesh Ghatak, "Profit with Purpose? A Theory of Social EnterpriseAmerican Economic Journal - Economic Policy. Volume 9, Number 3, August 2017, Pages 19-58.

R. Benabou and J. Tirole: “Individual and Corporate Social Responsibility," Economica, 77, 1-19, 2010.

Video of lectures by Stephan Chambers:

Changing the face of philanthropy, social entrepreneurship and private action

How to be a Social Entrepreneur