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When Dollars Crowd Out Sense
August 22, 2018 incentives

Unquestionably it is the case that offering financial incentives can, and does, undermine motivation for certain behaviors. Not to be too crude, but if I offered my wife $100 in order to have her cook me dinner, she’d probably be less likely to do it than if we had planned something together. You can imagine other activities.

Without overblogging this. to me this is not a case of financial incentives undermining other ones, it is simply a question of clarifying what the goods in question are. But ignore that. When folks start seeing the wide applicability of this principle, they are lured to start thinking that financial incentives undermine all behaviors and have found yet another crutch for an intrinsic (you like that!) dislike of markets.

OK, fine.

Here is one application. I don’t buy it on net, but it is plausible: “We can’t possibly start paying cash to people to donate kidneys, it will undermine the intrinsic motivation to do it and we will get less kidneys. We want more kidneys, so we should avoid payments.” (Ignore all of the other reasons you may object to paying people for the moment).

OK, fine.

But I heard this one recently, with the causality a bit twisted:

“Teachers of our youth perform a service that is as valuable as anything you could possibly do for a career. It is a vocation for many, and it is vastly underappreciated and underfunded. Therefore, because teachers are so intrinsically motivated to teach our young people … we need to … offer … additional financial incentives.

As I like to say. You may try to hold both of these positions, but I suggest it is pretty awkward. YCHIBW.

 

"3" Comments
  1. “We can’t possibly start paying cash to people to donate kidneys, it will undermine the intrinsic motivation to do it and we will get less kidneys. We want more kidneys, so we should avoid payments.”

    It is worth pointing out to those that make this assertion, that this is an empirical claim – and one that does not hold up well to the available evidence. For example, Iran is currently the only country in the world that permits one to sell one’s kidney for compensation and it is also, I believe, the only country in the world in which there is neither a waiting list nor a shortage of available kidneys for transplant. I do not believe this is a coincidence.

    See here: https://en.wikipedia.org/wiki/Kidney_trade_in_Iran

  2. “…it is simply a question of clarifying what the goods in question are”

    This is a really useful insight. Hope you can say more (i.e. about how to clarify) in another post.

  3. When I was in the Air Force I took pride in wearing the uniform. Did I ever sit down and say to myself “OK I am willing to accept this somewhat lower salary vs that of my peers in the private sector because I get psychic compensation for serving?” No, of course not, but it was implicit. I just never thought of it consciously. But in retrospect it was quite real.

    Regarding your example regarding teachers, I hope you keep a running list of such contradictions. The other one I liked was your observation that it is tough to reconcile “equal pay for equal work” with a progressive tax structure. You have a knack for spotting these, do you track them? Heck you could write a book…

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