Incentives and Introduction to Economics
Merriam-Webster defines incentive as something that encourages a person to do something or to work harder.
Incentives lie at the core of the study of economics. As economist Steven Landsburg has said:
“People respond to incentives. The rest is commentary.”
Tyler Cowen and Alex Tabarrok (reference below, video above) illustrate the importance of getting the incentives right with the example of a simple policy change to the way sea captains in the late 18th Century were compensated for transporting prisoners from Britain to Australia. After public outrage and regulatory measures had failed to raise the survival rate for prisoners above 70%, the British government took the advice of “the unknown economist” and began to pay sea captains for the number of prisoners that arrived in Australia alive rather than the number who embarked on the voyage. The survival rate very quickly rose to 99%. As one observer (image below) put it, “Economy beat sentiment and benevolence.”
Atlas topic, subject, and course
Merriam-Webster, at http://www.merriam-webster.com/dictionary/incentive, accessed 30 April 2016.
Landsburg quote from minute 0.20 of the Economics Video – Incentives Matter, at https://www.youtube.com/watch?v=VE_RLd08DvU, accessed 30 April 2016.
Tyler Cowen and Alex Tabarrok, minute 1:06 to 2:40 in video, Introduction, Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics, accessed 18 April 2016.
Page created by: Ian Clark, last modified 30 April 2016.
Image: Tyler Cowen and Alex Tabarrok, minute 1:07 in 4-minute video, Introduction to Economics, Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics, accessed 18 April 2016.