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The Role of Incentives

The Role of Incentives. Incentive--a thing that motivates or encourages one to do something. Positive Incentives reward people for behaving in a certain way: Come shop on this day and save 20% Get excellent grades and you can get into a good university

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The Role of Incentives

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  1. The Role of Incentives

  2. Incentive--a thing that motivates or encourages one to do something.

  3. Positive Incentives reward people • for behaving in a certain way: • Come shop on this day and save 20% • Get excellent grades and you can get into a • good university • Fly with our airlines and we’ll give you frequent • flier miles • You can watch t.v. if you clean your room People respond to incentives

  4. Negative Incentives (disincentives) punish people for behaving in a certain way: • No recess if your homework isn’t done • Social ordinance laws: hold adults responsible for underage alcohol use in their households whether the adults are present or not • Texting while driving, first offense: • Overall average fine for first offense: $100 • Georgia: $297 and one point on your driving record • Alaska: up to $10,000

  5. Incentives: U.S. vs. European Energy Policy

  6. Taxes as Incentives Taxes alter the behavior of consumers by providing an incentive or disincentive Taxes per Gallon: USA = $ 0.50 tax per gallon Europe = $3.00 tax per gallon

  7. USA vs. Europe Cost of Gasoline USA: $2.70 per gallon Europe: $6.00 per gallon

  8. How does taxing gasoline in Europe change behavior of both consumersandproducers? CONSUMERS PRODUCERS

  9. Scooters almost as common as cars

  10. What incentives/disincentives could the U.S. use to reduce/end its use of fossil fuels? 1. 2. 3. 4. 5.

  11. A perverse incentiveis an incentive that has an unintended and undesirable result which is contrary to the interests of the incentive makers. What is a “perverse incentive?”

  12. Many problems in society occur because of “perverse” incentives • Testing for alcohol at dances • Company executives getting bonuses for reporting higher earnings • In Vietnam under French colonial rule, a program paying • people a cash reward for each rat tail • 19th century paleontologists traveling to China used to pay peasants for each fragment of dinosaur bone brought to them

  13. My Challenge to You: Be of great service to mankind by finding an out-of-whack incentive and fixing it It’s all about the correct incentives

  14. How could the U.S. reduce/end its use of fossil fuels? • Increase Miles Per Gallon requirements • Invest in research of Hydrogen Fuel Cells • Provide tax credits for buying Hybrid/Electric Cars • Raise taxes on gasoline • Put money into public transportation • AB 32-type laws to promote alternative energy sources

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