Incentives or Disincentives?

Abstract

If policy makers wish to encourage members of a population to take a socially beneficial action, should they reward those who take the desired behavior or punish those who do not? This article develops a model that facilitates both utilitarian and majoritarian perspectives on the use of incentives and disincentives in public policy. An asymmetry arises between the two types of policy: as incentives grow, higher shares of the population take the beneficial action and earn the reward, driving administrative costs up; as disincentives grow, however, smaller shares of the population fail to take the desired action, requiring fewer fines and exerting downward pressure on administrative costs. Domains that favor inducing high (low) shares of the population to take a desired behavior thus indirectly favor the use of disincentives (incentives). Distributive implications amplify this tendency, such that majoritarian influence on policy making tends to generate stronger disincentives and weaker incentives than are efficient.

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