Reflections on Incentives and Health System Reform

Abstract

Among economists, few tenets would produce more agreement than the statement that people respond to incentives. This is not a tenet of faith, because ample empirical evidence exists for its support. Perhaps this is why it seems such a small step to go from observation of individuals’ behaviour in response to incentives to reliance upon them as a major instrument of social as well as economic policy. Although political scientists and policy analysts are often wary of this step (Morone 1986) and can be especially suspect of reliance on financial incentives (Sapolsky 1977), warnings by economists (Stein 1973) are exceedingly rare. Indeed, in the one specific institutional context most familiar to economists — markets — the notion that production and consumption decisions made be individuals in their own self-interest can achieve social interests goes back at least to Adam Smith.

“Incentives are the essence of economics”.

The New Palgrave Dictionary of Economics

“Beware of incentives”.

James A. Morone, Seven Laws of Policy Analysis

“Just as a war is too important to be left to generals, so are questions of incentives too important to be left to economists”.

Bruno Stein, Incentives and Planning as Social Policy Tools