Why incentives matter?

On March 31, 2016 members of the Liberty Discussion Group gathered together at Gaia Restaurant and Coffee Shop, Thamel to discuss on the article “Incentives Matter” written by a economist Russell Roberts.

Here are some of the issues discussed by the participants.

  • Incentives are not only tangible/monetary but also intangible, therefore it is quite difficult to define and determine incentives. It is ambiguous and abstract term in itself. Hence, getting the incentives right is not easy.
  • Private sector has higher level of efficiency because they are provided with the right incentives i.e. profit. On the contrary, public sector looks inefficient. Is the lack of incentives in the public sector the reason behind it? If yes, is there a mechanism by which the public sector be incentivized in obtaining higher level of efficiency? To this question raised by some members, some other responded that giving more power to the government is the right incentive for increasing efficiency. This argument was refuted by some others arguing that it will only worsen the situation.
  • Politicians tend to make promises to the people because promises are in themselves incentives to the people. People in the hope of getting those promises fulfilled, cast their vote. Thus, politicians play with the incentives to secure votes.
  • Price regulation by the government is a disincentive to the producer which will result in the degradation of the quality of the product. Price regulation will dis-incentivize the producers from paying the same level price to the factor inputs and induce them to pay less as they are worse off if the factors are priced same even after price regulation.
  • In the reading, the writer has provided an evidence on how the private ownership of property is a better incentive in increasing productivity than the communal ownership. All the participants agreed that having the provision of private ownership provides greater incentives to the people to protect and expand their property, whereas when there is communal ownership, people tend to be negligible and ignorant towards the property.
  • How can we incentivize the investors from inside and outside the country to increase investment in Nepal? This issue was discussed exhaustively and various solutions were proposed. Having proper insurance policy, political stability, rule of law, well established private property rights and security were some of the proposed solutions.