Chapter 3 of 10All chapters
Chapter 3 of 10
Incentives
People respond to costs and rewards.
The core prediction
Change the payoff and behaviour changes, often in ways the designer did not intend. Most policy failures are incentive failures rather than information failures.
- Rewarding measured output produces measured output, not necessarily value.
- A rule that is cheaper to break than follow will be broken.
Unintended consequences
Rent controls reduce the supply of rentals over time. Bounties on snakes produced snake farms. Predicting the second-order effect is where the subject earns its keep.