The All-Star Game Incentive?

The Tigers (bravo!) and Giants are in the World Series, with possibly 4 of 7 games to be played in San Francisco. The majority of games will be played there because the extra game (if necessary) goes to the team representing the league that won the All-Star Game. The purpose of the rule (adopted in 2003) is to offer players and managers an incentive to provide more effort in the All-Star Game. I’m doubtful that this incentive matters much. First, with large teams each player is to some extent a free-rider — why risk injury, why strain yourself, if your efforts have little effect? That is especially true if by July you realize that your team has no chance of making it into the Series. Second, and even more important, I doubt that any player or manager’s effort is very responsive to this kind of incentive.

Good Intentions and Recycling Fraud

A recent Freakonomics radio podcast focused on the unintended consequences of bounties. Here's another great example: California's recycling redemption program no doubt seemed like a great idea when it was initiated, but an L.A. Times article suggests the system is being gamed. Last year, it appears that nearly 100 percent of recyclable cans sold in California were returned, and 104 percent (!) of plastic containers:

Crafty entrepreneurs are driving semi-trailers full of cans from Nevada or Arizona, which don't have deposit laws, across the border and transforming their cargo into truckfuls of nickels. In addition, recyclers inside the state are claiming redemptions for the same containers several times over, or for containers that never existed.

The Cobra Effect, Continued

Quite a few readers and listeners have written in with their own versions of "the cobra effect," as described in our recent podcast of the same name. Here's one particularly entertaining one, from Eblyn Miguel Angel:

I would like to bring a comment that came to mind when I heard your podcast on the "Cobra Effect," in particular when Levitt mentions that for any scheme presented a government must come to the realization that there will be schemers who will break the system or get around it.

I bring this up because my family is Dominican and growing up my father told me a folk tale of something very similar to this involving electric meters in his home country.

Special Parking for Hybrids

My wife took four grandkids to the Adventure Aquarium in Camden, New Jersey.  Looking for a parking space, she noticed the usual handicapped parking spots near the entrance, but also parking spaces reserved for hybrid vehicles.  The Aquarium, though not government-run, appears concerned about environmental issues and apparently tries to encourage energy conservation by making a visit easier for those who have chosen energy-efficient vehicles.  The private sector is implicitly subsidizing the purchase of hybrid cars, not by offering monetary incentives, but by subsidizing the time cost of owning these cars.  I suppose one can object that the subsidy matters more to those whose time is more valuable—presumably higher earners; but it’s still a neat way for the private sector to encourage energy efficiency.  I wonder how many other examples exist of explicit non-monetary subsidies by the private sector? (HT to FWH)

Taxi Tipping and the Principal-Agent Problem

A reader named Matt Hasten writes in to say:

While in Las Vegas last week for a convention, I took a taxi between casinos (might as well see a few while making my contribution). When it came time to pay and I pulled out a credit card, the cab driver informed me that using a credit card would mean paying a $3 fee in addition to the fare ($11.50). This struck me as a ridiculously high surcharge and when it came time to tip the cab driver (all of this using the back seat electronic card reader), I did not add anything extra. My logic was that while I usually tip 20% on cab fare, that would have only been $2.30 and I already was paying $3 above the fare.

I explained to the cab driver that the money I would usually spend tipping him was instead paying for the $3 fee the cab company imposed on me. The cab driver, understandably, saw things differently and had some colorful wishes for the remainder of my evening. At the time, I felt justified not tipping because I felt the only way to make my displeasure known about the fee was to stiff the cab driver and hope his (and other cab drivers') anger of missing out on tips might put pressure on the cab company to change the policy. In hindsight, I do feel bad about stiffing the driver! I'm the kind of guy where you have to really mess up to earn less than a 20% tip at a restaurant.

I know the driver didn't set the $3 credit card fee, but taking it out on him by not tipping was the only way I saw to make my displeasure known or, better yet, impact a greedy policy.

Was I right to not tip?

Incentives for Organ Donations

A new paper from Nicola Lacetera, Mario Macis, and Sarah S. Stith (abstract; PDF) looks at whether various incentives are helping in getting more organ donations and bone-marrow donations:

In an attempt to alleviate the shortfall in organs and bone marrow available for transplants, many U.S. states passed legislation providing leave to organ and bone marrow donors and/or tax benefits for live and deceased organ and bone marrow donations and to employers of donors. We exploit cross-state variation in the timing and passage of such legislation to analyze its impact on organ donations by living and deceased persons, on measures of the quality of the organs transplanted, and on the number of bone marrow donations. We find that these provisions did not have a significant impact on the quantity of organs donated. The leave legislation, however, did have a positive impact on bone marrow donations. We also find some evidence of a positive impact on the quality of organ transplants, measured by post-transplant survival rates. Our results suggest that these types of legislation work for moderately invasive procedures such as bone marrow donation, but may be too low for organ donation, which is riskier and more burdensome to the donor.

Are we perhaps inching closer to a legal market in organs?

The Sharapova Effect

recent paper (full PDF here) by Young Hoon Lee and Seung Chan Ahn makes a clever point about occupations in which people are paid for a main activity and a secondary area where success depends on productivity in the main activity.  If success in the latter also depends on some other characteristic, people who are well-endowed with that characteristic will invest more in the skills needed to be productive in the main activity: the incentives created by that synergy will spill over to earnings in the main activity. 

Their example is the Ladies Professional Golf Association (LPGA).  Better-looking golfers get lower scores (perform better) — but only going from average-lookers to the best-looking. Below the average, there’s no effect of differences in looks on tournament scores.  That makes sense — you probably won’t get more endorsement opportunities if you’re average-looking instead of bad-looking.  Although not golf, one might call this the Sharapova Effect. Are there other labor markets, or other activities, in which a similarly unusual synergy exists??

Letter From Argentina: Does the Government Pay Your Nightclub Cover Charge?

A reader named Gustav, a.k.a. the Modern Nomad (a nice blog, by the way) writes to say:

Hi! I've just left Buenos Aires after a five-month long nomadic visit there. Reflecting on my time there, I remembered something an Argentine friend told me, and I think you might like the economic spirit behind it.

Gustav is right. I do like the economic spirit behind the story he tells, and I think you will too:

In short, this is a government scheme created to discourage driving under the influence. When you and your friends drive to a disco, you enter the club as normal and pay your entry. But when you leave, the group walks up to the cashier and presents the designated driver, sober and fit for driving. Everyone in the group gets their entry fee back at that point! The club then gets the lost money back from the government who, I presume, find it cheaper to pay the entry fee for clubbers in the company of designated drivers than have them in the hospitals. To me, this is a beautiful economic point of view where the practical reality and cost of things is more important than not to be seen 'supporting clubbers.'

Making Prison Schoolwork Pay

Prisoners in Brazil now have a path to reduced sentences: schoolwork.  The Chicago Tribune reports that:

Inmates in four federal prisons holding some of Brazil's most notorious criminals will be able to read up to 12 works of literature, philosophy, science or classics to trim a maximum 48 days off their sentence each year, the government announced.

Prisoners will have up to four weeks to read each book and write an essay which must "make correct use of paragraphs, be free of corrections, use margins and legible joined-up writing," said the notice published on Monday in the official gazette.

If Brazil is bribing its prisoners to do schoolwork, can bribing students be far behind?

(HT: Marginal Revolution)

Bribing Kids to Try on Tests

We use direct financial incentives to motivate so many different activities in life.  No one expects workers in a fast food restaurant to flip burgers for free.  No one expects teachers to show up and teach without getting paid.  But when it comes to kids in school, we think that the distant financial rewards they will earn years or decades later should be enough to motivate them, even though for most kids a month or two feels like an eternity.

To learn a little more about whether kids' school effort responds to financial incentives, John List, Suzanne Neckermann, Sally Sadoff, and I carried out a series of field experiments we recently wrote up as a working paper (PDF here).  Sally Sadoff (who you might remember from the Freakonomics movie as the woman who works tirelessly to help the students in Chicago Heights), talked about the research on Fox Business News.

Unlike most previous studies involving kids, schools, and payments, in this research we aren’t trying to get kids to study hard or learn more, we were going after something even more simple: just get the student to try hard on the test itself.  So we don’t tell the kids about the financial reward ahead of time -- we just surprise them right before they sit down to take the test by offering them up to $20 for improvements.