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It is easy to underestimate the difficulty of creating the right incentives. In the 1940’s, the paleontologist von Koenigswald was searching for early human re

It is easy to underestimate the difficulty of creating the right incentives. In the 1940’s, the paleontologist von Koenigswald was searching for early human remains on Java and decided to enlist the help of the locals in his search by offering them “ten cents for every piece of hominid bone they could come up with.” Unfortunately for von Koenigswald (and for his findings), he discovered too late that the locals “had been enthusiastically smashing large pieces into small ones to maximize their income.” From http://freakonomics.blogs.nytimes.com/2009/10/20/when-youre-paying-per-bone-fragment-expect-more-fragments/ http://freakonomics.blogs.nytimes.com/2009/10/20/when-youre-... (The story is from the book A Short History of Nearly Everything, which is one of the best books I've ever read. The amazing thing about the book is that it is in fact a short history of nearly everything.) Combine the difficulty of getting incentives right with the inherent problems of Government and a dangerous mix results. For example, every time a subsidy is created, a special-interest group sprouts up dedicated to preserving the subsidy in perpetuity, long after it has outlived its utility.

colkassad 16y ago
Sorry, off-topic: I highly recommend the audio book version of A Short History of Nearly Everything narrated by Richard Matthews (not the one narrated by the author).
CWuestefeld 16y ago
An old friend from India told me a parable he brought from his homeland. It's similar to this, except it backfires on the greedy guy. There's a king who wants have very rich and flavorful soup, so he tells his chef that, for every drop of grease floating in his bowl, he will pay a coin. The greedy chef wants to maximize his pay, so he dumps a lot of oil into the soup. Of course, this results in a single oil slick across the entire top of the bowl, so the king pays him only a single coin.
- confuzatron 16y ago
  Mmmm. Oil-covered soup! I think that one backfires on everybody involved.
lionhearted 16y ago
> It is easy to underestimate the difficulty of creating the right incentives. My favorite "Incentives matter" story is FedEx - they were having a hell of a time getting drivers to get packages shipped on time. They tried all sorts of things - threatening, praising, performance reviews, training, etc. None of it worked. Then they changed their pay from "per hour" to "per shift" - you work a shift, you get paid a certain amount. Go home when you complete your shift, regardless of how long it takes you. Right away, their on time rate went massively up - in fact, a lot of shifts started being completed early at that point.
- nodata 16y ago
  This sounds like the equivalent of ROWE. So what happened next? Did FedEx management cut pay since the job was easier than they previously thought?
  - spolsky 16y ago
    I'll tell you what happened--they started reporting "nobody at home" so they didn't have to ring the doorbell. Haven't you ever been sitting at home waiting all day for a package to arrive, only to find on the website that the driver reported "nobody home"?
    - gamble 16y ago
      This is exactly what happens. I often work from home, and I see them do this all the time. You would think that with the explosion of personal shipping in the last fifteen years caused by the Internet, that these companies would have figured out residential deliveries by now but, if anything, it's become worse.
      - Sizlak 16y ago
        I've had this happen. I always try to get residential deliveries from UPS because they seem to understand this better. Maybe Fedex needs to add an incentive for successful deliveries instead of just completing the shift. Or maybe they don't care because they really focus on business deliveries and residential is just a distraction.
WalterBright 16y ago
A classic example are the companies that have sprung up for the sole purpose of maximizing Medicare payouts. Ever see those ads for scooters on TV "at no cost to you"?
- davidcann 16y ago
  I hadn't heard those places were bad, but they do seem a little too good to be true. If there's a scam, do you know how it works?
  - staunch 16y ago
    1) Make a scooter that costs you $1000. 2) Price it at $5,000. No one would actually pay that price of course. 3) Let people who have Medicare get them. Send the bill to Medicare, which is obligated to pay because it's a covered medical appliance.
- jamesbritt 16y ago
  An acquaintance used to work for a doctor's office where they used billing software designed to find the best treatment codes to use when preparing a bill. The goal was to select codes for those things that were covered by Medicare or insurance. Every so often someone would call up and ask about some odd item on their bill, and it would end up being some bullshit charge for something they didn't get, or a carefully selected charge that was similar to, but not really, they service that was actually provided. But since most of the time the costs were covered by some other party most people didn't bother inspecting their bills or statements, or bother looking closely at what was charged.
Eliezer 16y ago
My very first thought on seeing the title was, "Where is this a problem?" (Didn't realize they were talking about the past.) My second, immediately following thought, was "Pay them to not kill passengers." That's progress - how to get simple incentives right is a lot more obvious now to economically literate folk than it was back then.
Dove 16y ago
Creating correct incentives is difficult because it requires (A) Articulating exactly what you want (B) Measuring that accurately (C) Keeping out things you don't want None of these are easy problems to solve. And they are generally ignored because most people don't realize they are problems at all.
- kmfrk 16y ago
  It is like getting a genie to grant you your wish. :)
dschobel 16y ago
Hayek sums it up nicely: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

colkassad 16y ago

Sorry, off-topic: I highly recommend the audio book version of A Short History of Nearly Everything narrated by Richard Matthews (not the one narrated by the author).

CWuestefeld 16y ago

An old friend from India told me a parable he brought from his homeland. It's similar to this, except it backfires on the greedy guy. There's a king who wants have very rich and flavorful soup, so he tells his chef that, for every drop of grease floating in his bowl, he will pay a coin. The greedy chef wants to maximize his pay, so he dumps a lot of oil into the soup. Of course, this results in a single oil slick across the entire top of the bowl, so the king pays him only a single coin.

confuzatron 16y ago
Mmmm. Oil-covered soup! I think that one backfires on everybody involved.

lionhearted 16y ago

> It is easy to underestimate the difficulty of creating the right incentives. My favorite "Incentives matter" story is FedEx - they were having a hell of a time getting drivers to get packages shipped on time. They tried all sorts of things - threatening, praising, performance reviews, training, etc. None of it worked. Then they changed their pay from "per hour" to "per shift" - you work a shift, you get paid a certain amount. Go home when you complete your shift, regardless of how long it takes you. Right away, their on time rate went massively up - in fact, a lot of shifts started being completed early at that point.

nodata 16y ago
This sounds like the equivalent of ROWE. So what happened next? Did FedEx management cut pay since the job was easier than they previously thought?
- spolsky 16y ago
  I'll tell you what happened--they started reporting "nobody at home" so they didn't have to ring the doorbell. Haven't you ever been sitting at home waiting all day for a package to arrive, only to find on the website that the driver reported "nobody home"?
  - gamble 16y ago
    This is exactly what happens. I often work from home, and I see them do this all the time. You would think that with the explosion of personal shipping in the last fifteen years caused by the Internet, that these companies would have figured out residential deliveries by now but, if anything, it's become worse.
    - Sizlak 16y ago
      I've had this happen. I always try to get residential deliveries from UPS because they seem to understand this better. Maybe Fedex needs to add an incentive for successful deliveries instead of just completing the shift. Or maybe they don't care because they really focus on business deliveries and residential is just a distraction.

WalterBright 16y ago

A classic example are the companies that have sprung up for the sole purpose of maximizing Medicare payouts. Ever see those ads for scooters on TV "at no cost to you"?

davidcann 16y ago
I hadn't heard those places were bad, but they do seem a little too good to be true. If there's a scam, do you know how it works?
- staunch 16y ago
  1) Make a scooter that costs you $1000. 2) Price it at $5,000. No one would actually pay that price of course. 3) Let people who have Medicare get them. Send the bill to Medicare, which is obligated to pay because it's a covered medical appliance.
jamesbritt 16y ago
An acquaintance used to work for a doctor's office where they used billing software designed to find the best treatment codes to use when preparing a bill. The goal was to select codes for those things that were covered by Medicare or insurance. Every so often someone would call up and ask about some odd item on their bill, and it would end up being some bullshit charge for something they didn't get, or a carefully selected charge that was similar to, but not really, they service that was actually provided. But since most of the time the costs were covered by some other party most people didn't bother inspecting their bills or statements, or bother looking closely at what was charged.

Eliezer 16y ago

My very first thought on seeing the title was, "Where is this a problem?" (Didn't realize they were talking about the past.) My second, immediately following thought, was "Pay them to not kill passengers." That's progress - how to get simple incentives right is a lot more obvious now to economically literate folk than it was back then.

Dove 16y ago

Creating correct incentives is difficult because it requires (A) Articulating exactly what you want (B) Measuring that accurately (C) Keeping out things you don't want None of these are easy problems to solve. And they are generally ignored because most people don't realize they are problems at all.

kmfrk 16y ago
It is like getting a genie to grant you your wish. :)

dschobel 16y ago

Hayek sums it up nicely: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."