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Essay (CSI Health 09’)


BALARAJU BATTU (b.battu@yahoo.cm)


Economic incentives are consequences of the modern way of life. In the standard economic theory, it is assumed that behavior of the economic agents is guided by the material interests of individuals. Recent research in behavioral economics and human cooperation has shown that individuals’ behavior is not only guided by material interests of individuals but also by their moral sentiments. On the other hand economic incentives can suppress individual freedom, and hence pose the question of fairness. This makes it very important for health intuitions to design appropriate policies that suit the well-being of the individuals. It is a challenging task for policy makers and health intuitions as to when to encourage economic incentives in the context of agents’ fairness and autonomy. For a policy maker it is important that not only incentives influence human behavior but also it is important that what extent it is ethically justified.

Mr. Balaraju Battu (b.battu@yahoo.com), CSI Health 09’


In the standard economic theory it is assumed that economic agents are motivated by money or material interests (expected utility), moreover efforts also increase monotonically with incentives (positive or negative). However, recent understanding of the nature of economic incentives shows that people are also motivated by moral values, internal drives, justification and a sense of belonging. Indeed incentives are the consequence of modern way of life and there is always a thin line between individual autonomous choices and economic incentive. What is important here is how we set up the incentives? Individuals often do not behave in their best interest even if they know what their best interest is. These effects are particularly pronounced in the areas of health-related behavior.

An incentive is a payoff for an agent to do more of good and less of bad. There are economic, social (they don’t want to see others as doing something wrong), and moral incentives (they don’t want to do something they consider wrong). Determining whether certain moral values or individual freedom is suppressed prior to the implementing economic incentives is extremely important in case of high risk health policies. It is essential to understand what is appropriate to be able to rely on positive incentives to induce certain actions.

Quite often individual’s trade-off between financial incentives with moral or social incentives and vise-versa. In one of the studies on late-parents behavior in attending Israel day-care center (Gneezy and Rustichini, 2000), researchers implemented various types of economic incentives to understand the behavior of the late-parents. Parents used to arrive late to collect their babies from day-care center by forcing teachers to stay late, to stop this late-parents behavior the school introduced little monetary fine for the late coming parents. The study found out that the little amount of fine encouraged the parents to pay the fine but did not stop the behavior of late-parents. Moreover the number of late-parents at the day-care center was also growing. Later on the school removed the fine imposed as it did not help them to change the late-parent behavior and the number of late-parents increased after the fine was imposed. The researchers concluded that parents substituted the fine with moral incentives. Before the fine was introduced most of the parents were aware of moral and social incentives but after the fine the late-parents simply substituted the moral and social incentives with the fine. Perhaps the fine is not sufficient to change the late-parent behavior and it is prompted individuals substitute economic incentives with moral or social incentives.

In an interesting study on blood donation (Mellstroem et al, 2005) researches tried to test whether economic incentives improve the donation of blood. In their behavioral study, initially the researchers offered no incentives to the blood donors, then they were offered little compensation for blood donors, and finally researchers were offered the same compensation and also offered a chance to donate the money to a charity. The researchers found that there was a dramatic decrease in the number of blood donors after the compensation was offered. They discovered that people tend to donate less blood when they are given a small stipend rather than just being praised for their altruism. Further when the researches offered a chance to donate the money to charity they observed that women and men responded differently and number of blood donors increased dramatically. For every incentive has a dark side. If blood donation provide large sum of money like $500 or $5000, we can be sure that plenty of people would take notice of it and might induce unethical behavior to get the money.

It is important to understand which sides of the incentive do economic agents choose? Which category of incentive scheme actually prompts us to do what we do? Do we need to choose any incentive at all? Do we need something material to prompt us to do what we supposed to do? However, the positive consequences of ethical policies are the agents’ willingness to accept economic incentives in their decision, in sense agents choices are autonomous and thus guide their behavior in appropriate ways. Identifying moral issues in the context of incentives helps the policymakers to initiate ethical policy making and in turn the individuals obey the incentives. For a policy maker it is important that not only incentives influence human behavior but also it is important that what extent it is ethically justified. Balaraju Battu (b.battu@yahoo.com), CSI Health 09’