Incentives and Motivation
by Brad Edmonds
It sounds pedestrian, but one way to gain insight into people’s behavior is to ask what the motivation could be for the behavior you’re observing. This is more than a curiosity, or even a truism relevant only for obscure psychological research; examining the motivation of others can help you make important decisions, and thereby affect your own outcomes.
As noted by a home schooled student recently, one of the reasons home schooled children are better educated and socialized than government- or private-schooled students is that parents are motivated only by the well-being of their children. By contrast, public school teachers are union members and government employees; both groups produce distorted incentives for members, primarily in that member loyalty is not to the constituency served. Put another way, if government teachers are loyal to their unions, they are better off financially; what is good for the students is irrelevant (or worse – a population deliberately made ignorant is more likely to continue voting for increased funding for government schools). Further, that they work for the government means teachers can continue to demand funding and perquisites regardless of the quality of their service.
Private school teachers are much less beset by such conflicts, but private schools usually still have to please the government, by hiring government-certified teachers and by submitting curricula for government approval. (Private schools suffer in other ways compared to home schools: A class with 20 students will exert pressure on the teacher to orient himself toward the lowest common denominator; and since a private school must satisfy the largest number of parents, Alan’s parents might have to accept for Alan what the parents of Barbara and Charles want for Barbara and Charles.)
Our heroes in Congress, while they claim they are rushing to rescue us from evil CEOs, are motivated only to win votes – a concern independent of solving financial reporting problems. Votes are won by politicos’ acting publicly as though they are solving problems. In reality, in their ignorance they are worsening current financial reporting problems by writing new laws that will have unintended consequences of their own. (Even worse is the near certainty that some Congressmen realize that more laws will deepen the problems, but that the true cause-effect relation will escape the awareness of the public; they know that future outcries arising from the new problems will have Congress making new laws that take still more freedom from us while giving still more power to government.)
People are not automatons, and incentives such as job security, money, power, and recognition are not the only things that motivate us. In many – not all – law schools, first-year students leave dissatisfied when they learn that justice is ignored while the law as considered a tool to be used to win settlements. Regardless what government-fostered short-term incentives they face, most CEOs are interested in the long-term outlook for their company, most have used their rank to ensure that honest financial statements are produced, and most would be honest in the absence of government attempts to make them so. And many individuals not only behave honestly in business, but even tithe. People are more complicated than simple punishment/reward schemes make them out to be.
That being said, incentives can be viewed another way: Whenever a large population is offered an incentive for doing something, there will be takers. If the government offers a monthly check to teenaged girls, even if the catch is that they have to have a baby and no job prospects, and even though most teenaged girls will recognize that it is a raw deal, there will be girls lined up at the government office, infant in hand, to begin receiving their checks. If Congressmen offer the prospect of legislation that favors businesses who forward campaign contributions, they’ll have plenty of campaign contributions. If Congressmen are promised votes from Midwestern states for supporting legislation that amounts to direct transfer payments from the rest of us to farmers, along with higher prices for food (indirect transfer payments), Congressmen will weigh the votes they’ll gain and lose, and make their decisions, without regard to the effect on the economy or individual families.
The tangible incentives we face are just a subset of the varied things that motivate us. They don’t explain behavior to the extent that it is easy to predict what any individual will do, except in those cases where there is an exceptionally strong incentive at stake and there are no counterbalancing disincentives. But applied to a population, incentives reliably tell you what to expect on a larger scale. They help explain the inefficiency of government and the effectiveness of the private sector. They help explain why the nuclear family is the foundation of any successful society. Looking for incentives can even help you predict where a new law will have unintended consequences. Finally, of course, the notion of incentives explains too well how our government got where it is in the first place.
August 3, 2002
Brad Edmonds [send him mail] writes from Alabama.
Copyright © 2002 LewRockwell.com
