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Research has shown that financially incentivizing sustainable behaviors may undermine individuals' conformity to pro-environmental social norms, but it remains unclear why and when such a crowding out effect occurs. Using data from a quasi-experiment in Quzhou, China, this study has tested crowding out in a local incentive program for household recycling and evaluated the causal mechanisms and boundary conditions of crowding out. The reward program reduced residents' inclination to conform to their neighbors' recycling behaviors and persuasion, which was driven by the lowering of the first- and second-order beliefs underlying norm conformity. The crowding out effect and pathways were particularly salient among people with high levels of environmental self-identity or community social embeddedness. Moreover, framing the incentivized behavior in an environmentally beneficial way could not mitigate crowding out. Overall, the results contribute to refined theories of crowding out and have important implications for the design of environmental policies. [ABSTRACT FROM AUTHOR]