Tuesday, September 21, 2010

Incentives trump intentions

Washington Post:
Some of the country's most prominent health insurance companies have decided to stop offering new child-only plans, rather than comply with rules in the new health-care law that will require such plans to start accepting children with preexisting medical conditions after Sept. 23.
So many well-intentioned policies actually make worse the very problems they are intended to solve. This is because we tend to focus on the intentions of the proposed policy instead of asking what incentives it creates. When it comes to influencing behaviors, intentions are irrelevant. It's all about what behaviors are being rewarded and punished.

If we force insurance companies to provide more expensive services without allowing them to increase their costs, should we be surprised that they simply close up shop and find more profitable ways to make money? We'll be seeing more of this.

Update: Incentives trump intentions -- Part 2:
A few years ago, officials in Brooklyn, New York came up with a seemingly brilliant idea to deal with the rat-infestation problem in their borough: release opossums into the neighborhood to eat the rats. Once the rat population disappeared, officials surmised, the opossums would have nothing to eat and would disappear as well.

Like most ham-handed government efforts at social engineering, this one backfired: the opossums showed no interest in the rats, taking instead to rummaging through trash for food. Meanwhile, they procreated like mad. Result: Brooklyn is now overrun with rats and opossums.

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