Does money makes things worse?

Plastic Bags Blow!

Image by katerha via Flickr

Want to encourage people to do something? Give them a monetary incentive: pay them to do it, or fine them if they don’t. This is the traditional economic answer. But over the years, various studies have shown that it isn’t so simple.

A recent paper by Samuel Bowles and Sandra Polania-Reyes at the University of Siena is a great attempt to bring together the results of different studies in the area and try to draw out some implications for Government policy. In doing so, they summarise some particularly interesting examples:

Haifa day centres: Imposing fines on parents who arrived late to pick up their children from day centres in Haifa, Israel, entirely backfired. The number of late pickups doubled after the fines were introduced.

Irish bag tax: A small tax on plastic bags had the desired effect, resulting in a 94% drop in plastic bag use in two weeks.

Swiss voting: When authorities removed fines for people who didn’t vote, voting turnout fell, as you might expect. However, monetary incentives might not be the only thing at play here, because reducing the cost of voting by allowing postal votes had no effect  on turnout.

The authors of the paper argue that it isn’t so much the fine itself that is important, but what the imposition of a fine says about the different parties involved. They say that: “Fines deployed either to exploit or to control the target (or that give this appearance or that have this effect) are likely to be less effective… and may even be counterproductive. The reason, we think, is that they activate the target’s desire to constitute himself or herself as a dignified and autonomous individual who is treated fairly by others.”

They also recommend that monetary incentives are accompanied by explanations that emphasise how people’s actions will be socially beneficial, so that people are more likely to endorse the purpose of the policy, rather than be offended by it, or think it is unjust. For example, the Irish plastic bag tax was preceded by a publicity campaign, which emphasised the social obligation to use plastic bags wisely. In contrast, no explanation was given to parents for the Haifa day centre fines.

I think the simple message here is that people just like to be treated like grown-ups.

The paper, “Economic incentives and social preferences: substitutes or complements?” is here. The paper also contains references for the Haifa day centre, Irish bag tax and Swiss voting studies summarised above.

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