Photo: Flickr user lifeontheedge

Saturday, December 24, 2005

Perverse Incentives:

  • "Three-strikes laws", under which a third felony conviction yields life imprisonment, are intended to deter repeat offenders. However, they may encourage repeat criminals to kill witnesses — since the sentence for murder is no worse than the sentence for a lesser third offense.

  • In India, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead it led to the farming of rats.

  • Paying the executives of corporations proportionately to the size of their corporation is intended to encourage them to grow their companies by growing the bottom line (and not their earnings per share). However, it may cause them to pursue mergers to grow their companies, to the detriment of their shareholders' interest.

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