January 20, 2008

Cowen Highlight #1 (a little late)

Finally an established economist who openly acknowledges a dynamic set of incentives rather than the conventional monetary standard! Tyler Cowen presents a fresh view of the world of incentives in chapter 2 of this book when he discusses the weaknesses of monetary incentives. He acknowledges the complexities of human nature and makes a case against the exclusive use of money as the standard economic incentive.

Everyone is familiar with the idea that every man has his price. It’s s simple yet rather comprehensive statement that largely sums up economics’ definition of incentives. Specifically the empirical based efficiency economics camp heavily relies on monetary rewards as its sole source of incentives in problem solving scenarios. I’ve struggled with this for a long amount of time on a couple of levels. First, I think it’s na├»ve to think that on a large scale we can accurately entice large portions of an economy with monetary incentives. We just can’t predict individual preferences on a large scale like that. Somewhere along the way there will be a misallocation of resources. Second, I personally feel that when you degrade a society to a level that says money trumps all other things, it creates a somewhat dull and robotic society. Humans are more complex than that. I am fine with saying that self-interest generally trumps all other interest, but saying that monetary interest trumps all other interest is rather degrading to the human race as a whole.

Cowen makes a good point in this chapter that there are many cases (as with the car salesman example) in which monetary rewards function very well. However, in potentially many more cases monetary rewards are just a cover up for more core issues inherent in human character. I agree with Cowen in saying that if money rewards are used at the wrong time, corruption in destruction are the only true outcomes

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