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Having noticed a suspicious bunching of sick call-ins on Mondays and Fridays, the Boston fire commissioner ended the fire department’s policy of unlimited paid sick days on December 1, 2001. In its stead, he imposed a limit of fifteen sick days per year; firemen exceeding that limit would have their pay docked. Here is how the firemen responded: the number calling in sick on Christmas and New Year’s Day increased tenfold over the previous year.
The fire commissioner retaliated by canceling the firemen’s holiday bonus checks. The firemen were unimpressed: during the next year, they claimed 13,431 sick days, up from 6,432 a year earlier.2 Many firemen, apparently insulted by the new system, abused it or abandoned their previous ethic of serving the public even when injured or not feeling well.
I admit to having some sympathy for the commissioner. I once offered my teenage kids a price list for household chores as a way of topping up their modest weekly allowance. In response, they simply stopped doing the housework that they had once more or less happily done without incentives.
The commissioner’s difficulties and my failed experiment in home economics are far from exceptional. In subsequent blogs I will discuss well-designed experiments – some by psychologists, but surprisingly, most by economists – showing that imposing explicit economic incentives and constraints to induce people to act in socially responsible ways is sometimes ineffective or even, as Boston’s fire commissioner discovered, counterproductive. In short, incentives that appeal to our economic interests may “crowd out” intrinsic motivation and moral values
But is crowding out a problem? My hunch is that a larger penalty would have worked. The firemen’s massive sick call-ins on Christmas and New Year’s Day do not mean they had lost interest in money. Had the fire commissioner imposed a heavier penalty, the firemen would surely have shaped up, even if their anger and distrust would, as a result, have eclipsed their sense of duty. Economic interest would have substituted for pride in serving the public.
But even extreme constraints and incentives may have limits. Heavy fines or more draconian punishments might have deterred phony call-ins, but would they have motivated the subtler and immeasurable aspects of a fireman’s professionalism and bravery? Even if extreme penalties could do the job, a liberal society might find them repugnant.
So crowding out is a problem: even if a bigger incentive would have “worked” for reducing absences, it may well not have worked in motivating precisely what we rely on firemen to do. Instead of letting penalties substitute for the firemen’s sense of duty, the commissioner might have looked for policies that would affirm and enhance their civic pride.
Whether you think the firemen’s response to the commissioner’s incentives is a problem puts you on one or the other side of some venerable and unresolved questions in the philosophy of governance. These are, roughly, whether a society organized as if its citizens were entirely self interested could possibly work, and if so, would it be a good idea to govern according to one.
These are hardly new issues. Incentives that backfire has been a theme in psychological research going back to experiments in the 1970s showing that rewarding kids for their pictures crowded out their intrinsic enjoyment of painting them. Economists, however, were skeptical until experiments by the booming field of behavioral economics over the past decade and a half convinced many that incentives sometimes do not work in practice the way they do in economics textbooks.
Long committed to deductive reasoning based on simple-minded axioms about self-interested motivation (often summarized in the moniker Economic Man), economists have now turned to studying people’s values and interests experimentally. As a result Homo economicus is now in retreat, and the intersection of psychology and economics is a vibrant area of science.
Truth in blogging disclaimer: I am an economist; but even if you are weary of listening to economists going on about incentives – or maybe especially if you are – don’t go away. The blog that I am initiating with this post is not what you got in Econ 101.
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