Incentives or Disincentives?

Dan Alexander (University of Chicago, Harris School)

Abstract: When government seeks to induce a behavior among the population it governs, it may use either incentive policies to reward those that comply with the desired behavior or disincentive policies to punish those who do not comply. We ask which type of policy a majority of the population will prefer, and how it compares to the policy a social planner would choose. If the costs of administering a policy increase in the share of the population receiving the reward or punishment, then raising the size of a reward, which increases compliance, increases administrative costs. Raising the size of a punishment, which decreases noncompliance, lowers administrative costs. As such, using punishments (rather than rewards) is complementary to higher levels of compliance, with a majority tending to prefer larger punishments (and smaller rewards) than the social planner. We ground the results in a variety of policy-relevant examples, particularly questions in food policy.

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