Monday, September 24, 2012

Incentive Compensation Can Be Too Strong

A recent NY Times article reports that about 1,000 of the elderly in Shaoyang, have been deputized to enforce minor nuisance laws. They have been given the authority to ticket citizens who litter, spit in public or park illegally. Except that they get to pocket 80% of the fines collected from the tickets they issue. What would we expect to happen to enforcement?

That's right, violations have been found where perhaps none occurred:
A convenience store clerk reached by phone described how the newly empowered urban management officials have been pouncing on motorcyclists stopped at red lights, summons books at the ready. “Many of us depend on motorcycles to get around, but they’re now giving us tickets for not wearing a helmet, for not having insurance, or for not carrying our licenses,” complained the clerk, who would give only her surname, Li. “None of us dare drive our motorcycles anymore — it’s just too risky.”

What I expected, but has not been reported yet, is the settling of old grudges by trumping up violations against some neighbor who won't "toe the line." Or worse, extorting payments from the neighbor so as to avoid ticketing - an ersatz senior citizen protection racket.

From the policy perspective, the choice seems to be between imperfect under-enforcement of the laws and imperfect over-enforcement.
Zhang Yue, a downtown shop owner, acknowledged that city streets have become increasingly chaotic but suggested that the government reconsider its experiment. “People in this city have no respect for the law, making the traffic situation really terrifying,” he said, “but this crackdown is going very far, perhaps too far, in the other direction.” 

Hat tip: Angus

2 comments:

  1. We have a huge problem w/ trying to drive the right incentive programs for suppliers to reduce foreign material in ingredients. Our internal quality team thought it ideal to create a "MUST HAVE" of an incentive program on our list of best practices for foreign material prevention. The idea was for our suppliers to reward their own employees for finding foreign material. This was a "MUST HAVE" on the list, however, it has create false findings and the wrong incentive for employees to do the right thing--they do it get money and not to prevent material from getting into finished product. I have been opposed to this scheme from the beginning due to the rational-actor paradigm. The intention of the incentive program is good, but execution does not lead to the right results.

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  2. This seems like a really unethical policy. You’ve outlined the major reasons why in your post, but ultimately it comes down to the fact that it leaves the door open for corruptions. I work as a fundraiser, and a question I’m often asked by those who don’t understand philanthropy and fundraising is, “do you get a percentage/commission of the money you raise?” I’m always bothered by this question, and emphatically answer, “NO!” It would be highly unethical to be compensated relationally when I’m trying to raise money for a nonprofit organization. The donor believes that their entire contribution is going toward the wonderful things I’ve talked about. While I am indirectly compensated for my work, a “commission” on philanthropic contributions would completely change the industry (and not for the better!).

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