Perverse Incentives

29th August 2018

There is some hope when we get people posting observations like this one on the Homepaddock blog:

Doing something is not the same as doing something useful and can often have perverse consequences.

Exhibit 1:

I used to take bags to the supermarket most of the time.

Now I know they’re being canned, I never take them so I can stockpile them to use to line bins, hold shoes and dirty clothes while travelling, and the myriad other uses I find for so-called single-use bags.

Exhibit 2:

Two friends who own resthomes say they support the increase in caregiver earnings after last year’s pay equity settlement, as do I, but it hasn’t made it any easier to recruit and retain caregivers.

It has also made it harder to recruit and retain nurses who say the difference between their pay and that for caregivers doesn’t make the extra responsibility worth it.

Exhibit 3:

Proposed changes to tenancy law is designed to make renting more secure for tenants.

It will have the perverse consequence of reducing the stock of rental housing when landlords opt for Airbnb or other arrangements which give better returns with fewer hassles.

Exhibit 4:

Home Start grants were supposed to make it easier to buy their first house. But giving people more money without increasing the supply merely pushed up prices.

If government doing something has perverse consequences would it be better if they did nothing?

homepaddock

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