Economics: Perverse Incentives

The Invisible Hand: Perverse Incentives

by Matthew Lazin - Ryder

CBC RADIO Podcast

photo credit: eschipul

Homo Economicus 2.0 Podcast   Economists often use models to explain economic theory at work. In the simplest models, we humans are depicted as coldly rational beings who compute all our options, and act in our own self interest. This prototype of a person is called Homo Economicus. New thinking, however, is giving us a much more well-rounded view of human behaviour within economics.

In this episode we reveal a new model of a man, Homo Economicus 2.0. [MP3 file: runs 27 minutes]

 

 Incentives are the rewards you get for engaging in certain behaviours. They are often created by governments or other organizations to encourage people to act in a certain way, without mandating the behaviour. For example, you may get a tax break if you donate to a charity. But incentives can also be created unintentionally, and they can have unexpected and negative consequences. In this case, they can create the opposite effect to the one they are intended to have. Economists call these perverse incentives. In this episode, Carleton University economist Frances Woolley guides us through some examples of perverse incentives, and how politicians and policy makers can use these anomalies to create better outcomes in the future. We'll explore how the fields of crime prevention, pest control, and even the dog show circuit, have all provided valuable lessons from incentives that have gone rogue.

http://www.cbc.ca/theinvisiblehand/index.xml

 Source: http://www.cbc.ca/theinvisiblehand/episodes/2012/08/22/episode-nine-perverse-incentives/ Men and Markets Observed