In economics and sociology, an incentive is any factor, financial or non-financial, that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way.
Since human beings are purposeful creatures, the study of incentive structures is central to the study of all economic activity, both in terms of individual decision-making and in terms of co-operation and competition within a larger institutional structure. Economic analysis, then, of the differences between societies (and between different organizations within a society) largely amounts to characterizing the differences in incentive structures faced by individuals involved in these collective efforts. Ultimately, incentives aim to provide value for money and contribute to organizational success.

Incentive Categories
Incentives can be classified according to the different ways in which they motivate agents to take a particular course of action. One common and useful taxonomy divides incentives into three broad classes:
1. Remunerative incentives (or financial incentives) are said to exist where an agent can expect some form of material reward — especially money — in exchange for acting in a particular way.
2. Moral incentives are said to exist where a particular choice is widely regarded as the right thing to do, or as particularly admirable, or where the failure to act in a certain way is condemned as indecent. A person acting on a moral incentive can expect a sense of self-esteem, and approval or even admiration from his community; a person acting against a moral incentive can expect a sense of guilt, and condemnation or even ostracism from the community.
3. Coercive incentives are said to exist where a person can expect that the failure to act in a particular way will result in physical force being used against them (or their loved ones) by others in the community — for example, by inflicting pain in punishment, or by imprisonment, or by confiscating or destroying their possessions.
These categories do not, by any means, exhaust every possible form of incentive that an individual person may have. In particular, they do not encompass the many other forms of incentive—which may be roughly grouped together under the heading of personal incentives—which motivate an individual person through their tastes, desires, sense of duty, pride, personal drives to artistic creation or to achieve remarkable feats, and so on. The reason for setting these sorts of incentives to one side is not that they are less important to understanding human action—after all, social incentive structures can only exist in virtue of the effect that social arrangements have on the motives and actions of individual people. Rather, personal incentives are set apart from these other forms of incentive because the distinction above was made for the purpose of understanding and contrasting the social incentive structures established by different forms of social interaction. Personal incentives are essential to understanding why a specific person acts the way they do, but social analysis has to take into account the situation faced by any individual in a given position within a given society—which means mainly examining the practices, rules, and norms established at a social, rather than a personal, level.
It’s also worth noting that these categories are not necessarily exclusive; one and the same situation may, in its different aspects, carry incentives that come under any or all of these categories. In modern society, for example, economic prosperity and social esteem are often closely intertwined; and when the people in a culture tend to admire those who are economically successful, or to view those who are not with a certain amount of contempt, the prospect of getting or losing a job carries not only the obvious remunerative incentives (in terms of the effect on the pocketbook) but also substantial moral incentives, such as honor and respect from others for those who hold down steady work, and disapproval or even humiliation for those who don’t or can’t.

Types of Incentives
1. Straight piece rate: In the straight piece rate system, a worker is paid straight for the number of pieces he produces per day. In this plan, quality may suffer.
2. Straight piece rate with a guaranteed base wage: A worker is paid straight for output set by management even if worker produces less than the target level output. If worker exceeds this target output, he is given wage in direct proportion to the number of pieces produced by him at the straight piece rate.
3. Halsey Plan: W = R.T + (P/100) (S-T).R where W: wage of worker, R : wage rate, T : actual time taken to complete job, P : percentage of profit shared with worker, S : std. time allowed. Output standards are based upon previous production records available. Here management also shares a percentage of bonus.
4. Rowan Plan: W=R.T + ((S-T)/S).R.T Unlike Halsey Plan gives bonus on (S-T)/S , thus it can be employed even if the output standard is not very accurate.

Incentive in economics
The study of economics in modern societies is mostly concerned with remunerative incentives rather than moral or coercive incentives — not because the latter two are unimportant, but rather because remunerative incentives are the main form of incentives employed in the world of business, whereas moral and coercive incentives are more characteristic of the sorts of decisions studied by political science and sociology. A classic example of the economic analysis of incentive structures is the famous Walrasian chart of supply and demand curves: economic theory predicts that the market will tend to move towards the equilibrium price because everyone in the market has a remunerative incentive to do so: by lowering a price formerly set above the equilibrium a firm can attract more customers and make more money; by raising a price formerly set below the equilibrium a customer is more able to obtain the good or service that she wants in the quantity she desires.
A strong incentive is one that accomplishes the stated goal. If the goal is to maximize production, then a strong incentive will be one that encourages workers to produce goods at full capacity. A weak incentive is any incentive below this level.
Incentives help people to make the right decision, or the one one would like them to make. To accomplish things you want done in economics you must give the consumer or the producer incentives, with out them they would have no reason to do what you ask.
Incentive-based regulation can be defined as the conscious use of rewards and penalties to encourage good performance in the utility sector. Incentives can be used in several contexts. For example, policymakers in the United States used a quid pro quo incentive when some of the U.S. incumbent local telephone companies were allowed to enter long distance markets only if they first cooperated in opening their local markets to competition. Incentive regulation is often used to regulate the overall price level of utilities. There are four primary approaches to regulating the overall price level: rate of return (or cost of service) regulation, price cap regulation, revenue cap regulation, and benchmarking (or yardstick) regulation. With benchmarking, for example, the operator’s performance is compared to other operators’ performance and penalties or awards are assessed based on the operator’s relative performance. For instance, the regulator might identify a number of comparable operators and compare their cost efficiency. The most efficient operators would be rewarded with extra profits and the least efficient operators would be penalized. Because the operators are actually in different markets, it is important to make sure that the operators’ situations are similar so that the comparison is valid, and to use statistical techniques to adjust for any quantifiable differences the operators have no control over. Generally regulators use a combination of these basic forms of regulation. Combining forms of regulation is called hybrid regulation.

Travel Incentive
A special type of incentive is travel incentive reward.
The anticipation of a reward inspires incentive program participants to change their behaviour to receive the reward. A travel reward is unique from other types of rewards because it is experiential. The anticipation of the experience drives behaviour in a way that other rewards can’t. A cash reward is often absorbed into the participant’s day-to-day budget and is then forgotten about. However, a travel incentive reward contributes to behaviour change because of its appeal.
• 9.1 out of 10 participants agree that the “Opportunity to earn incentive program encouraged me to increase my efforts”
• 9.2 out of 10 agree that “I gain value from incentive travel programs by networking and interacting with other attendees and hosts”
• 9.5 out of 10 agree that “Travel is Appealing as a Reward”

See also the Incentive Cons