Perverse incentives and how to counter them


Call it what you will, incentives are what get people to work harder.

Nikita Khrushchev

Back in the good old days when the great unwashed could simply be shipped off to the colonies with nary a second thought, transportation of convicts was in the hands of private companies. These companies were compensated based on the number of prisoners shipped. As long as they were signed and sealed, no one cared over much if they were delivered and a depressing percentage of prisoners perished on-board these dreadful hulks. Eventually, the government, realising they were being short-changed and running the risk of running out of forced labourers, changed the metric from prisoners shipped to the number who arrived alive.

In the former Soviet Union, glass plant managers were rewarded according to tonnage of sheet glass they produced. Inevitably, plants churned out sheet glass so thick as to be useless. Right, thought the apparatchiks, we’ll sort out you bourgeois shirkers! And changed the rules so that square meterage of glass produced was rewarded instead. How did our put-upon factory managers respond? Yep, you guessed it; they produced glass so thin and fragile it would shatter as soon as you looked at it.

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