Perverse incentive
From Wikipedia, the free encyclopedia
A perverse incentive is an incentive that has an unintended and undesirable result which is contrary to the interests of the incentive makers. Perverse incentives are a type of unintended consequences.
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[edit] Examples
- In Hanoi, under French colonial rule, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats.[1]
- Funding fire departments by the number of fire calls made is intended to reward the fire departments that do the most work. However, it may discourage them from fire-prevention activities, which reduce the number of fires.[2]
- 19th century palaeontologists traveling to China used to pay peasants for each fragment of dinosaur bone (dinosaur fossils) that they produced. They later discovered that the peasants dug up the bones and then smashed them into many pieces, greatly reducing their scientific value, to maximise their payments.[3]
- Paying medical professionals and reimbursing insured patients for treatment but not prevention encourages the ignoring of medical conditions until treatment is required.[4]
- In 2007, the Bangkok police switched to punitive pink armbands adorned with the cute Hello Kitty cartoon character when the tartan armbands that had been intended to be worn as a badge of shame for minor infractions were instead treated as collectibles by offending officers forced to wear them.[5]
- Opponents of the Endangered Species Act argue that it may encourage preemptive habitat destruction by landowners who fear losing the use of their land because of the presence of an endangered species,[6] known as shooting, shoveling, and shutting up.
- Providing company executives with bonuses for reporting higher earnings encouraged executives at the Federal National Mortgage Association and other large corporations to artificially inflate earnings statements and make decisions targeting short term gains at the expense of long term profitability.[7]
- Opponents of Digital Rights Management argue that it creates perverse incentives for users to use pirated software when they are unable to access games they have legally purchased. They also argue that the additional transactional costs of accessing games - through server activation, passwords, requirement for internet access - drive people to piracy [1]
[edit] See also
- Cobra effect
- Conflict of interest
- Invasive species
- Perverse effects of vaccination
- Social trap
- Superimposed schedules
- Tragedy of the commons
- Welfare trap
[edit] References
- ^ Michael G. Vann, "Of Rats, Rice, and Race: The Great Hanoi Rat Massacre, an Episode in French Colonial History," French Colonial History Society, May, 2003
- ^ Department for Communities and Local Government (2002). "Fire". In Consultation on the Local Government Finance Formula Grant Distribution. Retrieved November 10, 2006.
- ^ Bill Bryson, A Short History of Nearly Everything
- ^ James C. Robinson, Reinvention of Health Insurance in the Consumer Era (2004). In JAMA, April 21, 2004; 291: 1880 - 1886. Retrieved 2008-01-12
- ^ Myndans, Seth (2007-08-25). "Cute Kitty Is Pink Badge of Shame in Bangkok". The New York Times. http://www.nytimes.com/2007/08/08/world/asia/08thai.html. Retrieved 2007-11-06. "It is the pink armband of shame for wayward police officers, as cute as it can be, with a Hello Kitty face and a pair of linked hearts."
- ^ Stephen Dubner and Steven Levitt, consequences&st=cse&scp=1 Unintended Consequences, New York Times Magazine, 20 January 2008
- ^ Lucian Bebchuk and Jesse Fried, Executive Compensation at Fannie Mae, Harvard, 2 February 2005
[edit] Further reading
- Sloan, John III; Kovandzic, Tomislav V. & Vieraitis, Lynee M. (2002). "Unintended Consequences of Politically Popular Sentencing Policy: The Homicide-Promoting Effects of 'Three Strikes' in U.S. Cities (1980–1999)". Criminology & Public Policy 1 (3): 399–424. doi:10.1111/j.1745-9133.2002.tb00100.x.
