Have you ever considered what the good people at Oxfam would do for a living if there wasn’t global hunger?

How would the sanctimonious Bob Geldof maintain his media profile if there wasn’t African children with flies in their eyes?

The answer, of course, is that despite what they may say in their media interviews these people are in the misery business and they need other people’s suffering in order to stay in business. They have a perverse incentive to continue doing what they do. This really struck me when the reprehensible Geldoff dusted off his 30 year old ditty “Do They Know Its Christmas”, this time to ostensibly fight Ebola (I wrote about this in a previous blog here). Obviously Geldoff didn’t receive the memo explaining that Ebola had been contained by Africans long before Christmas.

I have thought more about this issue and I wandered if there were other Bob Geldoffs among us. Unsurprisingly I came up with many more companies, organisations and people who are driven by perverse incentives.

Big Business

In this electronic age, I am stunned that my bank, cell phone provider and insurance company who have every bit of information about me except for details of my sex life, still need me to sign reams of paper each time I have to deal with them.  I always told by the friendly consultant that they hate having to go through the pain of all of this paperwork but they have to do it. So I asked myself why this procedure exists unchallenged.

Enter the perverse incentive.

These organisations need the mountain of paperwork in order to comply with bad business legislation such as FICA and RICA. This kind of bad law makes it almost impossible for any new competition in that industry. For starters if you were to compete you would need to establish a massive branch network and buy huge vaults and photo-copying machines in order to comply with the avalanche of paperwork required.

State Departments

Who hasn’t sat in a dirty, cold, uncomfortable and unfriendly government building waiting for divine intervention or a friendly or competent civil servant, and realising that you stood a better chance of receiving the divine intervention. Why has this process not been improved?

Civil servants are paid for their time, not their productivity. If you happen to solve the productivity crisis in government departments, this would lead to a drop in the number of staff and this could lead to you wearing the slightly out-of-fashion, but no-less effective Winnie necklace.

There are many perverse incentives at play here. Don’t mess with our livelihoods and don’t make your boss look bad. It doesn’t lead to promotion, it leads to the road out of here.

 

Corruption

Imagine that you are a Metro Cop, it is 23:38 on a Friday night and a middle-aged gentleman is driving down a main suburban road. You pull him over and immediately identify the unmistakable aroma of Charles Glass’s finest. You have two choices, accept the offer of the R500 spot fine, pocket the money and go home, or take him to the police station for blood tests, fill in the mountain of paperwork and then spend a day waiting testify in a dirty, uncomfortable courtroom while the transgressor has lawyered up and is about to rip apart every step of your arrest procedure.

Make the choice; R500 in your pocket or the perverse incentive of reams of paperwork and days in a breezy, disorganised courtroom?

The common thread running through all of these perverse incentives is that they probably started out with the best intentions. Most charities, even Bob Geldoff’s, probably started out hoping to help less fortunate people, but now they are businesses and trade exclusively in the suffering of others. When that suffering ends, they no longer have a business.

Big business needed paperwork but realised that if they loaded the amount of paperwork needed, especially if it was legislated, it cemented their monopolistic position.

I have no doubt that you can think of a dozen cases of perverse incentives. Wouldn’t it be great if we were able to stop this kind of thing? Well the first step to stopping it is to identify it, so share your examples of perverse incentives with the rest of us in the comments below.

 

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