Wednesday, August 18, 2010

(Which) Incentives Matter

Can't remember if I already blogged about this video or not, but it's worth reviewing. Monetary incentives, the authors claim, work well for simple, straightforward tasks, but poorly for motivating creativity. Thanks to Barder for reminding me and applying it to international aid. (oh, and do notice the facial hair of the "weird Socialist conspiracy" at about 2:50 seconds)

Speaking of behavioral stuff, Blattman mentioned an IZA paper that studied lottery winners and their neighbors. Winners got a BMW. Most of them sold it within six months and kept the cash.
…having an immediate neighbor win the PCL raises the probability that a household will buy a car in the next six months by close to 7 percentage points and reduces the mean age of its main car at the survey date by half a year (about a 7 percent decline). Relative to the modest effects of the lottery prizes on the consumption choices of winning households, these effects on neighbors are large.
Relative wealth effects.

Update: The Economist has a review on an innovation book refuting a few of the claims made in the video: "The let-them-loose approach spreads resources thinly and indiscriminately. ... Managers have to spend weeks sorting through the chaff to find a few grains of wheat."

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