Perverse Incentives

20 Aug

A month or so ago, I noted that the problems in the UK’s Job Centres (particularly sanctioning people on very flimsy grounds) were caused by big government. The case workers at each job centre are told, not to put too fine a point on it, that the less money they spend, the better. Accordingly, they have an incentive to deny benefits to as many people as possible.

From their point of view, the problem goes like this. “This guy here is clearly disabled; he cannot reasonably be expected to work. But if I give him the benefits, my job is at risk. I’m going to have to deny him the benefits even though he needs them.”

Does that sound unpleasant? Of course it does. It’s also human nature. People are not actually selfish, but they are self-interested. I imagine a drone at the job centre went to work intending to sort the deserving cases from the scroungers, but rapidly discovered that it was a great deal easier (and safer) to class everyone as a scrounger.

This is a perverse incentive, an incentive to do something morally wrong even though it’s legally right.

Here’s another example. In the average court case, there is a prosecutor and a defender; the former charged with putting forward the case against the suspect, the latter charged with defending him. It sounds reasonable, doesn’t it? But consider – a prosecutor may find his job at risk if he fails to successfully prosecute someone, even though it’s clear the suspect is innocent. Therefore, he has a strong incentive to push the case as hard as he can. This only gets worse, in fact, if the case happens to have a political dimension.

Once again, there is a perverse incentive.

Here’s a third example. A policeman who patrols the London Market may be doing an excellent job of keeping crime down, just by being there and being visible. But there’s no way you can count the number of crimes that didn’t happen. Accordingly, policemen – and police departments – may be judged by the number of people they arrest. An officer who arrests 20 people in the course of a month may look better than one who arrests no one (but, by being where he is, deters crime.) Therefore, the police have an incentive – a perverse incentive – to arrest more people even though it doesn’t do anything for public safety – indeed, it actually weakens it.

A fourth example? In schools, most exams and test results are useless – but they’re what the government officials use to monitor the school’s work. Therefore, teachers have a strong incentive to cheat, either indirectly (by teaching to the test) or directly (by altering the answers before the papers are sent to be marked.) They know, given that they’re the people on the ground, that the whole system is barmy – they tell themselves, I suspect, that there is no real harm in cheating. But again, it’s a perverse incentive.

Why does this happen?

Like I said, the answer lies in the nature of bureaucracy.

Bureaucrats aren’t called bean-counters for nothing. They are disconnected from the things they regulate, so they look for ways to calculate progress by gathering statistics and analysing the numbers. That isn’t always a bad thing. If you are trying to monitor how well your shop is running, you can do it by keeping a careful eye on your numbers. However, this has the great weakness of twisting the reporting agencies to focus on the numbers rather than anything that might serve as an actual barometer of progress.

For example, you might have a military report that boils down to “in the first month, we killed 500 insurgents; in the second month, we killed 5000 insurgents; in the third month, we killed 50000 insurgents … oh, and we lost the war.”

The fallacy above is that progress in a war cannot be measured by the number of enemies killed (unless your objective is outright genocide). A war is won by taking control of the enemy country, seizing the previous power structure or building new structures. But this means there are going to be a lot of issues that cannot be measured using numbers.

The greater the distance between the controllers and the drones, the greater the disconnect between reality and the tools bureaucrats use to measure reality. This tends them towards ‘one size fits all’ solutions when, in reality, such solutions work barely less than half the time.

It seems logical, you might think, to push control (and authority) down the ladder as much as possible, perhaps by allowing job centre workers to make decisions without fear of losing their positions. However, another set of perverse incentives suggests otherwise. If the people on the ground can do the job without being supervised, why does anyone need the people at the top? The managers (who probably have pointy hair) will not want to create the impression that they are expendable! No, they will insist on maintaining control – and discouraging flexibility – to ensure that they keep their own jobs. Those with power rarely give it up for fear they will never see it again.

For everyone else? Well, they have the choice between doing what is right and what is easy – with the added problem that doing what is right will have negative consequences for them personally and doing what is easy will have none whatsoever.

And so, to borrow a line from Sluggy Freelance, “the [government] isn’t evil, it’s just bloated and stupid.”

Comic for 09/05/05

5 Responses to “Perverse Incentives”

  1. Dennis the Menace August 20, 2015 at 8:37 pm #

    “And so, to borrow a line from Sluggy Freelance, “the [government] isn’t evil, it’s just bloated and stupid.”

    When the government storms your house, ransacks it and then gives you an unconstitutional gag order not to talk about it or even tell your lawyer — all because you worked for the opposition party to the district attorney who organized that raid and got a partisan judge of the same party to rubber stamp the warrants which were based not on traditional notions of probable cause but on mere suspicion, it isn’t just ‘bloated and stupid’. It IS evil.

    Did this happen in Russia? Or Zimbabwe? It probably does.

    But what I described in the above is what Democrats did in Wisconsin to various Republicans.

    It only came to light because one of the victims wouldn’t be intimidated and went to the press despite the gag order. Like a vampire exposed to daylight, the partisan hack of a judge who issued the warrants recused herself immediately. The new judge immediately threw these cases out and now civil rights lawsuits against the officials in question are working their way in federal court.

    Welcome to Obama’s America — where evil DOES reign in the government.

  2. Duncan Cairncross August 20, 2015 at 10:39 pm #

    Absolutely correct Chris
    And it is function of the size of the organisation
    You get exactly the same in “private companies” – only slightly worse
    Most people (or at least a large percentage) who go in for public service start off with the intention of helping people

    Large private companies don’t have that so you get very similar problems with the added drag that even less of the employees actually give a rats arse about the public

    Another “Perverse Incentive” is that promotion tends to go to people who work “to be promoted”
    If you have two engineers (this is my field I know about engineers) one of whom spends his time and energy doing his job and making the company run better the other one spends the same amount of time and energy promoting himself
    Who do you think gets promoted??
    Which explains why the senior levels of any company are full of people who spend all of their time promoting themselves and not making the company run well

    • Dennis the Menace August 21, 2015 at 9:05 pm #

      The Axiom of Engineering Organizations state that the least competent engineers are the ones in management.

      As for the rest of what you write, I think that SciFi author Jerry Pournelle summed it up best:

      Jerry Pournelle’s Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people:

      First, there will be those who are devoted to the goals of the organization. Examples are dedicated classroom teachers in an educational bureaucracy, many of the engineers and launch technicians and scientists at NASA, even some agricultural scientists and advisors in the former Soviet Union collective farming administration.

      Secondly, there will be those dedicated to the organization itself. Examples are many of the administrators in the education system, many professors of education, many teachers union officials, much of the NASA headquarters staff, etc.

      The Iron Law also states that in every case the second group will gain and keep control of the organization. It will write the rules, and control promotions within the organization.

  3. Duncan Cairncross August 22, 2015 at 9:32 am #

    Bloody Hell!
    I’m agreeing with Dennis – I need a large whiskey and a place to lie down

    So we have two opposing issues
    (1) Efficiency of scale
    (2) The Iron Law

    (1) Can be very powerful,
    When I worked for Cummins we could sell a 6 liter, 300hp Turbo diesel engine to Chrysler for $2,000 because they bought 500 a day
    The development and manufacturing set-up costs were over $500 Million

    Imagine what a computer would be like if the parts were all made by small organizations

    (2) The Iron Law
    There are people “devoted to the goals of the organization”
    How do we get more of them and less of the other?
    Some organizations do a lot better than others

    • Dennis the Menace August 26, 2015 at 12:38 am #

      Yes, the situation of the world is probably most dire when you and I see eye-to-eye so completely. 🙂

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