Economists have long understood that policy chosen by politics is unlikely to be socially optimal. This is because politicians face the probability of losing power and may discount the future too much, or act to improve their re-election probability. This column explores these issues taking into account the fact that future government revenue is uncertain. Public income volatility acts to reduce the efficiency of public policy. This has important implications for developing countries that rely on income from volatile sources, such as natural resource extraction.
James A Robinson, Ragnar Torvik, Thierry Verdier, Monday, July 27, 2015
Bruno S Frey, Jana Gallus, Wednesday, March 11, 2015
Official awards are common in both monarchies and republics. Awards are bestowed not just by the state and the military, but also by cultural associations, academic institutions, and corporations. This column surveys the academic literature on the use of awards and their effect on motivation and performance. The authors argue that awards are a welcome means of honouring dedication and commitment. They delight their winners, motivate high performance, create role models – and come at low or even no cost.
Tim Besley, Anders Jensen, Torsten Persson, Thursday, February 12, 2015
The Eurozone sovereign debt crisis has highlighted the problem of tax evasion. This column examines the effect of social norms on tax compliance using the UK poll tax as a natural experiment. Comparing councils where tax evasion spiked more during the poll-tax period to those where it spiked less, there was no systematic difference before the poll-tax period. However, once the poll tax was abolished, tax evasion remained higher in the former group, suggesting that high poll-tax non-compliance created a persistent norm of non-compliance.
Erika Deserranno, Wednesday, February 11, 2015
We know that financial incentives can affect behaviour by increasing the payoff to completing a task. With incomplete information about a job, financial incentives can also affect potential applicants’ behaviour by conveying a signal about the nature of the job. In the context of a recruitment campaign for a new position, this column presents the first empirical evidence of the signal conveyed by incentives and its strong effect on the selection of workers and the performance of the organisation.
Niklas Bengtsson, Per Engström, Tuesday, October 28, 2014
Critics of the ‘audit society’ and the so-called ‘new public management’ doctrines have gained momentum in recent years. At the centre of the critique is the so-called motivation crowding-out hypothesis. This column presents evidence from a field experiment involving Swedish non-profits. Far from crowding out intrinsic motivation, the threat of an audit improved all aspects of efficiency.
Raj Chetty, Emmanuel Saez, László Sándor, Monday, August 11, 2014
Peer review is at the heart of academic economics, but there are few professional rewards for submitting detailed referee reports on time. This column reports the results from an experimental study of referee motivation. Shorter deadlines ‘nudged’ referees to submit reports earlier. Cash incentives also reduced turnaround times, suggesting that any ‘crowding out’ of intrinsic motivation is small. Social incentives – publication of turnaround times – were more effective for tenured referees than shorter deadlines or cash incentives.
Richard Dorsett, Thursday, November 21, 2013
Individuals moving from long-term unemployment into work face a number of challenges. This column discusses the use of temporary in-work support during this transition. Recent experimental evidence has shown the potential for such support to have a positive long-term effect. It can increase not only employment entry but also employment retention, and so may provide a means of addressing the low pay, no pay cycle.
Imran Rasul, Daniel Rogger, Tuesday, November 19, 2013
Around the world, civil service reform is viewed as necessary to deliver public services effectively and to foster development. However, evidence is thin on how the management of bureaucrats affects the provision of public services. This column presents new evidence from Nigeria linking completion rates of government projects to bureaucractic management practices. Greater autonomy is associated with higher completion rates, whereas performance monitoring and incentive schemes seem to backfire. The most effective private-sector management practices may not be suited to public sector bureaucracies.
Joan Costa-i-Font, Friday, April 12, 2013
Are healthy lifestyles purely about people’s personal choices? Can we explain why specific people are fit, non-smokers and risk-averse? This column argues that policymaking can incentivise health behaviour but that monetary incentives are not the only approach. Academics and policymakers should aim to influence social norms and society’s role models when monetary incentives are not enough.
Simon Burgess, Carol Propper, Marisa Ratto, Emma Tominey, Stephanie von Hinke Kessler Scholder, Thursday, September 6, 2012
Do cash incentives matter in the public sector? This column looks at the use of incentive schemes, such as performance-related pay, in the British Labour government between 1997 and 2010. It finds that cash incentives do matter, but that their design is critical.
Oriana Bandiera, B Kelsey Jack, Nava Ashraf, Tuesday, March 13, 2012
What motivates agents in the social sector? Recent theoretical advances indicate that financial incentives might crowd out intrinsic motivation and reduce performance. This column describes a field experiment where hairdressers in Zambia were motivated in different ways to sell condoms. It finds that social recognition can be a more powerful performance motivator than financial gains.
Victor Ginsburgh, Monday, January 16, 2012
Economists have shown that wine tasters can’t tell Bordeaux from budget plonk, movie critics are prone to giving biased reviews, and Olympic judges are often judging what’s best for them to say rather than what’s in front of them. This column asks why we should expect credit-rating agencies, with their own unique set of ignorance and incentives, to be any different.
Ian Tonks, Sunday, January 8, 2012
Ever since the fall of Lehman Brothers, it has been a popular view – and one increasingly held by officials – that banker bonuses are at least partly to blame. This column compares executive pay in banks with other companies and finds, contrary to the growing consensus, that the financial sector differs not so much in its reward for taking risks, but in its reward for expansion.
Torben M. Andersen, Monday, September 27, 2010
Springing from the debate over the Danish flexicurity system, the author of CEPR DP8025 outlines a model in which incentive effects of tax-financed unemployment benefits are balanced by direct and indirect insurance benefits. Such benefits may increase labour market flexibility by making job searches less risky for workers.
Xavier Gabaix , Alex Edmans, Wednesday, June 24, 2009
Many blame executive compensation for encouraging shortsighted risk-taking. This column argues that compensation should be structured so as to provide incentives consistent with the firm’s position and long-term interest. It proposes “incentive accounts” that it says would be superior to existing compensation schemes.
Jon Danielsson, Con Keating, Monday, May 25, 2009
Bank bonuses have been blamed for contributing to the crisis, and regulators and politicians are now demanding changes in compensation arrangements. Most of these calls are based on a misconception of the nature of financial risk, an inflated view of the efficacy of risk models, and an incorrect view of the incentive issues facing financial institutions. This column proposes reforms that would discipline senior managers by exposing them to the dangers of junior managers’ risk taking.
Andrea Prat, Monday, March 9, 2009
Financial regulation was flawed. However, there are signs that regulators could have done much more with the rules and information they had. Even the best rules are useless if regulators are not interested in enforcing them. This column says regulatory bodies should open their books and make their industry connections transparent so we can evaluate and reduce the risk of regulatory capture.
Edward J Kane, Monday, March 2, 2009
CEPR Policy Insight No. 32 attributes the ongoing financial crisis to the economic and political difficulties of monitoring and controlling the production and distribution of safety-net subsidies.
Edward J Kane, Tuesday, March 3, 2009
This column introduces Edward J. Kane’s new Policy Insight on the incentive roots of the securitisation crisis
Nicola Lacetera, Mario Macis, Tuesday, November 4, 2008
Episodes of blood supply shortage are the norm rather than the exception. “Pure” altruism is apparently not enough to guarantee a steady supply of blood, but economic incentives to donate might crowd-out intrinsic motivations. This column presents evidence that blood donors respond to material incentives and public recognition in the way predicted by standard economic theory. Rewarding them could increase blood supply.