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Perverse incentive

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A perverse incentive is an incentive that has an unintended and undesirable effect, that is against the interest of the incentive makers. Perverse incentives by definition produce negative unintended consequences.

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 peasants dug up the bones and then smashed them into multiple pieces to maximise their payments.[3]
  • Paying architects and engineers according to what is spent on a project leads to excessively costly projects.[4]
  • Paying medical professionals and reimbursing insured patients for treatment but not for prevention.[5]
  • The NFL Draft gives the earliest draft picks to the teams with the worst records in the previous season,[6] encouraging teams no longer eligible for the playoffs in a given season to lose as many games as possible so that they can obtain better draft picks the following season.[citation needed]
  • Relaxed eligibility criteria for Disabled Parking placards and extra parking privileges were intended to help the handicapped, but they also encouraged fraudulent use of placards by healthy people in order to find parking in cities where parking in scarce. Some healthy individuals also resorted to bribing doctors in order to receive a "legit" placard. Busy districts in San Francisco, Berkeley, and Sacramento in California are well-known for having as many as half of their street parking spaces filled with cars with disabled placards.

See also

Notes

  1. ^ 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
  2. ^ Department for Communities and Local Government (2002). "Fire". In Consultation on the Local Government Finance Formula Grant Distribution. Retrieved November 10, 2006.
  3. ^ Bill Bryson, A Short History of Nearly Everything
  4. ^ Amory Lovins Questions Design and Resource Efficiency(2002). "Part 2" in Energy Strategies Special Report, buildings.com. Retrieved 2008-01-12
  5. ^ James C. Robinson, Reinvention of Health Insurance in the Consumer Era (2004). In JAMA, April 21, 2004; 291: 1880 - 1886. Retrieved 2008-01-12
  6. ^ http://en.wikipedia.org/wiki/NFL_Draft#Rules_for_determining_draft_order

References

  • John Sloan III, Tomislav V. Kovandzic and Lynee M. Vieraitis. Unintended Consequences of Politically Popular Sentencing Policy: The Homicide-Promoting Effects of 'Three Strikes' in U.S. Cities (1980-1999). Criminology & Public Policy, Vol 1, Issue 3, July 2002.
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