Incentives and Disincentives

Incentives and disincentives literally drives the world.

Knowing how to manage both determines the success and the failure of any state or an individual. I will argue that this will be the solitary reason that will most justify the ostensible backwardness in the African continent compared to other progressive continents. Impunity metastases when you fail to reward hard work; and, accordingly if you fail to penalize  misconduct.

Imagine for a second, if there were no yellow or red card rules in soccer? Brutality becomes  the game.

But just like about anything else, a disincentive/incentive can go completely wrong. A pair of economists conducted a study of ten day-care centers in Haifa, Israel. Parents often come late to pick up their kids, so they decided to introduce a fine of $3 (disincentive) for coming late. Before the study, there are about 8 late pick-ups per week per daycare centers. Surprisingly – or rather not – after the introduction of the disincentives, the number of late pick-ups surged up to about 20.

Stephen Levitt and Stephen Dubner in one of their Freakonomics edition gave a decent explanation:

“You have probably already guessed that the $3 fine was simply too small. For that price, a parent with one child could afford to be late every day and only pay an extra $60 each month […] What if the fine had been set at $100 instead of $3? That would have likely put an end to the late pickups […] But there was another problem with the day-care center fine. It substituted an economic incentive ($3 penalty) for a moral incentive (the guilt that parents were supposed to feel when they came late) for just few dollars each day, parents could buy off their guilt”   

Interestingly (and expectedly), after the $3 fine was removed, the frequency of late pickups failed to drop.

While incentives (disincentives) drives a state, the ‘freaks’ stated “Any incentive is inherently a trade-off; the trick is to balance the two extremes”

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