Unintended Consequences

"People don't always respond to incentives in the ways you might predict. What distinguishes good economic thinking from bad is recognition of the subtle, creative, and often unforeseen ways that people respond to incentives."

Glen Whitman on incentives and unintended consequences.  (Discovering this way of thinking after being involved with lots of church and volunteer activities is what drew me into economics.)

In the developed world, we like to think of slavery as a bad memory. But slavery persists to this day, particularly in some parts of Africa, most notably the Sudan. Raiding parties steal children from their home villages and transport them for sale in slave markets many miles away. In the 1990s, when news of this ongoing tragedy came to the developed world, well-intentioned people formed charitable foundations that raised money for slave redemption—that is, buying people out of slavery.

Did these charitable efforts do any good? Certainly, some people are free now who might otherwise of have lived their whole lives in slavery. But there is strong evidence to suggest that slave redemption made the overall situation worse. As journalist Richard Miniter reported in a 1999 article in the Atlantic Monthly, the high prices offered by relatively rich Americans increased the demand for slaves, turned the slave trade into an even more lucrative business, and thereby gave raiders an incentive to conduct even more slave raids. If not for the activities of Western charitable organizations, many of the redeemed slaves might never have been enslaved in the first place!

How did the slave redeemers err? They focused on just one incentive (to release people already in bonds) while ignoring another (to capture more slaves). The sad result was an incentive scheme gone awry.

With just an iota of economics training, most people catch on to the importance of incentives. "Aha! To get people to do what we want, all we have to do is reward the good stuff and punish the bad stuff!" Alas, the world is not so simple. People don't always respond to incentives in the ways you might predict. What distinguishes good economic thinking from bad is recognition of the subtle, creative, and often unforeseen ways that people respond to incentives. Ignoring the complex operation of incentives is a recipe for unintended consequences.

Read the whole thing!

(HT Russ Roberts)