Incentives Matter

      Toward the end of the 18th century, England began sending convicts to Australia. The transportation was privately provided but publicly funded. But a lot of convicts died along the way from disease due to overcrowding, poor nutrition and little or no medical treatment. In fact, between 1790 and 1792, 12% of the convicts died, to the dismay of many good-hearted English men and women who thought that banishment to Australia shouldn’t be a death sentence. On one ship 37% perished.

      How might captains be convinced to take better care of their human cargo?  You might lecture the captains on the cruelty of death, and the clergy from their pulpits did just that. You might increase the funds allotted by the state provided to the captains based on the number of passengers they carried. You might urge the captains to spend more of those funds for the care of their passengers. (Some entrepreneurial captains actually hoarded food and medicine meant for the convicts and sold them upon arrival in Australia.) You might also shame them into better behavior by urging the captains to spend the money more carefully. 

      But a different approach was tried. The government decided to pay the captains a bonus for each convict that walked off the boat in Australia alive. This simple change worked like a charm. Mortality fell to virtually zero. In 1793, on the first three boats making the trip to Australia under the new set of incentives, a single convict died out of 322 transported – an amazing improvement.

      This is a classic example of how, as Dr. Milton Friedman put it, “Incentives Matter.”  So let’s construct a system that provides incentives for socially-desirable results, just like the saving of lives in sending convicts to Australia. Some examples would be to require police and prison officials to wear body cameras when they are dealing with the public or incarcerated people, which will provide incentives for everyone to behave better; to empower parents to choose how their government money will be spent for the education of their children, which will bring competition back to education which is often so lacking today; and to reduce the bureaucracy that must be dealt with to construct houses and apartment buildings, which will provide incentives to build more housing units.  And even non-financial incentive programs will work, such as giving public recognition to individuals and groups of volunteers, which will encourage that positive activity.  So let us all be aware of and follow Uncle Milton’s teachings, and create programs that use positive incentives!  Why?  Because they work!

Quote for the week: “The ones who are crazy enough to think they can change the world are the ones who do.”  Steve Jobs