Common Sense Economics: What Everyone Needs to Know about Wealth and Prosperity
There’s no way to get around the importance of incentives. They are a part of human nature. … In the former Soviet Union, managers and employees of glass plants were at one time rewarded according to the tons of sheet glass they produced. Because their revenues depended on the weight of the glass, most factories produced sheet glass so thick that you could hardly see through it. As a result, the rules were changed so that the managers were compensated according to the number of square meters of glass produced. Under these rules, Soviet firms made glass so thin that it broke easily.
Some people think that incentives matter only when people are greedy and selfish. This is untrue. People act for a variety of reasons, some selfish and some charitable. The choices of both the self-centered and altruistic will be influenced by changes in personal costs and benefits. For example, both the selfish and the altruistic will be more likely to attempt to rescue a child in a shallow swimming pool than in the rapid currents approaching Niagara Falls. And both are more likely to give a needy person their hand-me-downs rather than their best clothes.
- The exercise program caused Homer Simpson to get even less fit. What about his company’s incentive system caused him to do so?
- People are great at finding ways to get around incentive systems designed to make them do things they don’t like. What are some examples of this in your life (your curfew, internet controls, etc.)?
- Recently, a new study showed that spanking children is counter-productive. Do you agree? Do you respond better to “carrots” or “sticks” (positive or negative incentives)?
This reading is an excerpt from Certell’s Common Sense Economics eBook. Certell offers curriculum materials and eBooks free of charge for students and teachers. Click here to download the Common Sense Economics materials.
The Simpsons- Homer’s first day at work at Home! Nov. 28, 2015