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Unintended Consequences

Posted By Russ Roberts On May 14, 2007 @ 9:36 am In Seen and Unseen | Comments Disabled

Here is Glen Whitman [1]writing about the anatomy of unintended consequences. It’s a very nice essay which enhances the reader’s understanding of the economic way of thinking. Whitman distinguishes between those economists and activists who understand incentives and those who understand that the implications of incentives can be a bit more complicated than they first appear.

Here’s the opening:

In the developed world, we like to think of slavery as a bad memory. But
slavery persists to this day, particularly in some parts of Africa,
most notably the Sudan. Raiding parties steal children from their home
villages and transport them for sale in slave markets many miles away.
In the 1990s, when news of this ongoing tragedy came to the developed
world, well-intentioned people formed charitable foundations that
raised money for slave redemption—that is, buying people out of slavery.

Did these charitable efforts do any good? Certainly, some people are
free now who might otherwise of have lived their whole lives in
slavery. But there is strong evidence to suggest that slave redemption
made the overall situation worse. As journalist Richard Miniter
reported in a 1999 article in the Atlantic Monthly,
the high prices offered by relatively rich Americans increased the
demand for slaves, turned the slave trade into an even more lucrative
business, and thereby gave raiders an incentive to conduct even more
slave raids. If not for the activities of Western charitable
organizations, many of the redeemed slaves might never have been
enslaved in the first place!

How did the slave redeemers err? They focused on just one incentive (to
release people already in bonds) while ignoring another (to capture
more slaves). The sad result was an incentive scheme gone awry.

With just an iota of economics training, most people catch on to the
importance of incentives. "Aha! To get people to do what we want, all
we have to do is reward the good stuff and punish the bad stuff!" Alas,
the world is not so simple. People don’t always respond to incentives
in the ways you might predict. What distinguishes good economic
thinking from bad is recognition of the subtle, creative, and often
unforeseen ways that people respond to incentives. Ignoring the complex
operation of incentives is a recipe for unintended consequences.

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[1] Here is Glen Whitman : http://www.econlib.org/library/Columns/y2007/Whitmanincentives.html

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