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Economic Incentives Don’t Always Do What We Want Them To
Article

Economic Incentives Don’t Always Do What We Want Them To

On their own, markets can’t deliver outcomes that are just, acceptable — or even efficient.

Esther Duflo and Abhijit Banerjee
The New York Times, 2019
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Editorial Rating

9

Qualities

  • Controversial
  • Analytical
  • Eye Opening

Recommendation

Self-interest motivates human behavior. It should follow, then, that financial incentives would produce results in the US economy. Not so. Across all strata of American society, such inducements have much less strength than many people believe, yet economists and policy makers still cling to the notion that financial incentives work. Two of the 2019 Nobelists in economics, Esther Duflo and Abhijit Banerjee, argue in this thoughtful analysis that what really matters to people are self-worth, social standing and community ties, factors that leaders should consider in crafting public policy. 

Take-Aways

  • Economic theory posits that financial inducements motivate human conduct.
  • But theory often fails in the real world, as incentives frequently do not produce the desired result across socioeconomic groups.
  • Policy makers need to bridge theory with practice by recognizing the limitations of free markets and by understanding the value of thoughtful intervention to address real-world circumstances.
     

About the Authors

Esther Duflo and Abhijit Banerjee are economists at MIT. They received the 2019 Nobel Memorial Prize in Economic Sciences.

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