Dr J

I find it interesting that you talk about teachers cheating when there are incentives yet when the topic of CEO pay comes up nobody talks about cheating - yet the incentives are much much much bigger (10^6) - maybe the reason we have such poor corporate governance is because the incentives are too high, which encourages cheating and manipulating numbers for short term gain - a CEO only needs a good year or two to be set for life and that of his great grandchildren. In fact economist never talk about cheating or gaming the system, yet this happens all the time in any market based environment.


For shame Steven! You accepted a big chunk of fallacious reasoning here-you needed to challenge the assumption.

We'd spend less on medical care if people had healthier lifestyles and avoided heart disease and cancer. Any way to create incentives for that? --J.P., St. Louis

The thing about chronic diseases is that most of the costs fall on the person who's got it. If you have diabetes or heart disease or cancer from smoking, you bear the burden of being ill. It's not so clear there is a role for intervention. You might say we could inform people of the risk, but the research suggests that smokers are well informed. They like to smoke, or they can't help it.

It's nice to think that people who die of preventable diseases die at greater cost, and that if we all eat granola and exercise health care costs will go down, but there is no evidence behind this position. Everyone dies, obviously, and generally the faster the death occurs the cheaper the total costs. My Grandmother, a great dear old lady, lived to be 96 and still spent six months in hospital in her last year of life. Her lifetime health care costs were very high as she had frequent medical care for her lat ten years of life, and she drew a pension for 31 years. Sad to say, but it is quite possible that healthy people generate more not less costs as they tend to have a longer period of illness and infirmity.



So if your very first comment is about incentives, which is par for an economist, don't you wonder why other countries that have none of these incentives spend so much less on healthcare? I think you were correct in your statement above that you know just enough to be dangerous.

Amy S.

In that Q&A, you discussed that maybe incentives aren't so bad when it comes to education and motivating students. But then there there people (Ex. Daniel Pink, author of "Drive.") who say that incentives destroy the intrinsic motivation that is necessary to truly benefit (personally and academically/professionally) from an activity. What do you think about that? Is intrinsic motivation really that important? Is the difference between Johnny getting an A because he loves Science and Johnny getting an A because the teacher said he will get a prize really that big of a deal?


I haven't read 'Punished by rewards' by Alfie Kohn, but I just have an idea of what he means.
Children have an intrinsic curiosity and a parent needs to take advantage of that. Also, not having a TV in the living room makes it possible to spend time on learning rather than watching TV or playing video games.
'How children learn' by John Holt is a great book that teaches how to trust a child's curiosity and make learning fun than resorting to alternatives like bribing.

Bobby G

Levitt, very interesting read. Well done, I'm going to have to send this article along to some friends/family.


jonathan, I took his argument to mean that the incentives are not aligned in the U.S. and that is largely behind the huge costs.

I think Levitt would agree with you that it's not a coincidence that costs are much lower for other systems. The simple fact is that health care costs money.

Right now, there is no incentive to keep a lid on the costs in the U.S. If folks had some "skin in the game" they would perhaps make different decisions. They want gold-plated coverage and the health-care industry is happy to oblige. The only rationing that occurs is by insurance companies refusing coverage.

In single-payer systems the appropriate spending is determined by the level of public willingness to pay taxes. It is ironic that government-funded systems have more incentives than does the U.S. system to provide for efficiency.

The U.S. can offer the best level of health care in the world, but it ain't free. The buck has to stop somewhere.



"I find it interesting that you talk about teachers cheating when there are incentives yet when the topic of CEO pay comes up nobody talks about cheating...."

did we not see this?

levitt said:
"Wall Street is populated by a bunch of people whose primary goal is to make money, and the rules are pretty much caveat emptor. You'd be a fool or a deluded idealist to think ethics would be prominent on Wall Street. That is not a statement against people in the money business, just a fact. "