Incentives Matter

Imagine that you are the owner of a day-care center and that parents consistently pick their children up late. Your clearly stated policy is that children are supposed to be picked up by 5:30 pm. This makes pick-up time uncomfortable for all involved. What should you do? A couple of economists who heard of this dilemma suggested a simple solution: fine the tardy parents. They then decided to test this solution in a study of ten day-care centers in Haifa, Israel. For four weeks they tracked the number of late pick-ups and then in the fifth week a $3 fine per child per incident of lateness was enacted. After the fine was enacted, the number of late pickups promptly went up. What is the incentive in this example? Do you think this means that incentives don't matter? Are there incentives other than economic incentives?

Why Incentive Do Not Work? See this video and make your discussion Lively.

https://www.youtube.com/watch?v=FdkQwQQWX9Q

STUDENT POST #1

I think incentives are important. I think that giving parents a late pick-up fine is a fair idea. I think owners are limited to how much they can charge people just because if they charge people too much then those parents are more likely to stop doing business with that day-care company. Parents will look for other day-care companies that are less likely to charge these incentives. For example my parents own a business that offers custom embroidery all year long, we start to get really busy during the holidays, as most businesses do. Because of the very high demand during the weeks leading up to Christmas we always suggest customers come in prior to get their items done quicker and before Christmas day. But for those people that like to wait until the week before Christmas we charge a rush fee. Most people understand because they know they are at fault for waiting until the last minute (just like many parents that pick their kids up from day-care late know they are at fault) but most people will remember the rush fee they paid the year before and will not wait until the last minute in the future. 

Another example, my uncle owns a Mediterranean restaurant in California and offers a complimentary bar that has sides like fresh olives and pickles, assorted cheese, and other goodies. But if people take advantage of this treat and start taking more than is ideal for each person then he will have to close the bar down. It’s a give and take kind of thing. 

At UCLA we have course evaluations at the end of the semester, professors usually tell students that if a certain amount of students complete the course evaluations then they will add 5 points to a test. This works in favor of both staff and student. 

STUDENT POST #2

In this example, the incentive was the threat of of a monetary fine for picking up your child late, however, this did not work. I think that this example shows more about what type of incentives work rather than proving that incentives as a whole are worthless. According to the video the biggest problem with using financial incentives, is that people will acclimate almost immediately to them. To go back to the daycare example, the increase in late pickups may have been because people saw the $3 fine as a small extra fee that would give them more time to get to the day care. I think that a better way to have done this would have been to make the parents feel that it is truly important for them to pick up their children on time. For example if they could instill the idea in the parents that it was good for their children's emotions to be picked up on time, this may incentivise the parents to be on time so that they feel like they are being good parents and to improve their relationships with their children. 

I do think that incentives work, but today I think that many people would be more motivated if they felt like they were a part of a greater cause or that they were making something better, rather than being motivated by money. 

STUDENT POST #3

In the daycare late pickup example, the number of late pickups increased once a monetary fine was placed on the infraction.  I believe this is the case because it gave the adults a measurable consequence of $3 per infraction and this was minimal to the amount of money they felt they were making when compared to staying at work longer.  The adults are not taking into account the children that are getting stressed out wondering when their parent will be at the day-care to pick them up.  The stress of the unknown, in my opinion, is far more harmful than the reward of earning a few more dollars by staying at work longer, but I really don’t think the opportunity cost was measuring the stressful effects on the child, but rather the monetary fine verses the potential amount earned.

 In the video “Why Incentives Don’t Work” Steve Levitt points out that incentives from employers to employees are appreciated the first time they are given, but the long-term effects tend to be the employee becomes accustomed to receiving the incentive to the point that it is expected and not an incentive any longer. 

 It is funny that Steve uses an example of turkey give away to employees one holiday because I have lived that incentive in my business life and yes, it does become an expected action instead of an incentive.  I have also watched employees get extremely mad when they didn’t receive a monetary bonus one year due to a turn in the economy.  This bonus had been earned by the employees for a number of years when the industry was booming, but the year that the company I worked for had to do everything possible to just stay afloat, the employees didn’t receive the “expected” bonus and some got very angry because they had already set their lifestyle up according the earnings they projected which included the annual bonus.  A bonus is just that – a possible extra.  Bonuses shouldn’t be figured into annual salary.

 I also know from years of being in the business world, that monetary incentives can be appreciated but the day to day feeling of doing something that has a purpose, is a more long-lasting motivator.  People want to make a difference by nature so I agree with Mr. Levitt’s argument of “Why Incentives Don’t Work”.  In my opinion, the daily culture is far more important to motivate employees than random possible incentives.