Why Do People Work Hard When They Have No Economic Incentive To Do So?

Let’s play a game. I will name two forms of football and you tell me which you think offers better incentives to players. On the one hand is soccer, the world famous sport which receives huge funding from sponsorship, merchandise and ticket sales. This allows large investment in the sport and the ability to pay good (sometimes even exorbitant) wages. On the other hand is Gaelic Football, played only by Irish people mainly in Ireland. Unlike soccer, it is an amateur sport and none of its players get paid. All athletes must also have full time jobs, meaning they can only train in the evenings after work.

This should be obvious. Continue reading “Why Do People Work Hard When They Have No Economic Incentive To Do So?”

Wrong Kind Of Incentives

Pick any economics textbook and they will tell you about how people are motivated by incentives. These are what guide the economy and ensure it functions. As Adam Smith famously said, we get food from butchers and bakers not through charity but because they have an incentive to sell and make a profit. But what happens when incentives lead people in a negative direction? What if people have an incentive not to help others but make a profit from them? One common problem known to health economists is known as supplier induced demand and occurs when doctors put making money ahead of helping their patients. Continue reading “Wrong Kind Of Incentives”

Why Did Communism Fail? #3 – Incentives

The most common and simple explanation for why communism failed is that people are greedy. This is a gross simplification but does contain some truth. Communism failed to provide incentives for workers and citizens to work hard and be productive. While there are many benefits from equality, if pushed to an extreme it robs people of an incentive to make an effort. There was little if any reward for hard work or innovation and a lack of punishment for poor or inefficient work. The lack of incentives was a major reason for the poor performance of Eastern Europe economies. Why bother working hard if the reward was the same as doing the bare minimal? Continue reading “Why Did Communism Fail? #3 – Incentives”