Wednesday, November 1, 2017

Three classes of incentives

Dietrich Vollrath says "The core of economics is that people respond to incentives."

I like that. I was thinking about different sources of incentives:

1. Policy creates incentives (including disincentives). That's why policy is useful. It moves the economy. Now, if only we could find the right policy...

2. Promises sometimes create incentives. Think of FDR or Reagan or (maybe) Donald Trump (we'll see) coming to office with a story that excites people and brings hope of economic improvement. Or, no that's not it: Every politician tries to bring hope of economic improvement. Instead, say coming to office at the right time, so that the new leader's "impending prosperity" story actually pans out.

3. Actual economic conditions offer the best incentives of all. Coming to office at the right time, and all that.

No comments: