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

Economic theory posits that financial inducements motivate human conduct. 

Policy makers have long hewn to the notion that financial rewards inspire individuals’ actions. Indeed, economist Adam Smith held that self-interest compels human actions. 

Yet research has shown that such incentives turn out to be far less effective than expected, and that’s true across a wide swath of socioeconomic groups. The wealthy do not work less hard when top tax rates increase, any more than the indigent do when welfare entitlements rise. A tax code change in Switzerland that resulted in a two-year reprieve from income tax had no effect on the size of the workforce. Similarly, employment in Alaska has not suffered since the 1982 advent of a roughly $...