People respond to incentives.
But there is an issue.
They often do not respond how you might wish them to.
Because economics is hard. And the human component of it all is even harder.
The Freakonomics guys give us 3 reasons why a given incentive might not work.
1. People can usually find a workaround.
2. Behavior is difficult to predict.
3. Behavior is not constant.
“Why do some incentives, even those created by smart and well-intentioned people, backfire so badly? We can think of at least three reasons: 1. No individual or government will ever be as smart as all the people out there scheming to beat an incentive plan. 2. It’s easy to envision how you’d change the behavior of people who think just like you do, but the people whose behavior you’re trying to change often don’t think like you—and, therefore, don’t respond as you might expect. 3. There is a tendency to assume that the way people behave today is how they’ll always behave. But the very nature of an incentive suggests that when a rule changes, behavior does too—although not necessarily, as we’ve seen, in the expected direction.”