People respond to incentives. This simple sentence, generously interpreted, sums up much of what you’ll learn in a good undergraduate economics course. The challenge, of course, is to understand that this is always true, even if we wish it otherwise.
For example, imagine for a moment that you are in a position where you have to make a decision. There are three options for decision making. You can make the right decision or the wrong decision. “But Dave, there are only two options!” you say. The core of this work lies in the following nuances. There are two ways to make a mistake. Sometimes we act when we shouldn’t, and sometimes we don’t act when we should.
It’s impossible to get things right all the time. So which type of mistake are you most likely to be wary of? It depends on which one will get you fired.
In most government environments, the answer is biased in specific (and predictable) ways. This is what economists call asymmetric responsibility, and it occurs when the consequences of one type of mistake are visible, responsible, and (potentially) career-ending, while the consequences of another mistake are diffuse, invisible, and no one in particular is to blame. These incentives make agencies more wary of misbehavior than of failing to act when it would be helpful. The resulting problems are not the result of incompetence, but of rational self-defense. We see this every day with the FDA, the TSA, and our ever-increasing national debt.
Let’s take the FDA as an example. They can also approve treatments that turn out to be unsafe, or postpone (or deny) treatments that could have saved lives. Approving unsafe treatments can lead to patient identification, newspaper headlines, and even Congressional hearings. If the treatment is not approved, these effects usually do not exist. The continued suffering (and even death) of untreated patients due to lack of market access is rarely associated with regulatory bottlenecks.
The incentives this creates are clear. FDA reviewers will continue filing applications for another two years, but will not be responsible for any deaths that delay may have caused. Reviewers who approve something that later causes harm can face career ruin. result? Institutions that require further research and clinical trials before approval and are leaning toward prudent delay.
The same pattern explains why TSA confiscates water bottles. If a security screener waves at a passenger and that passenger later commits an attack, the consequences can be devastating and, importantly, traceable to the screener. Rather, if you inconvenience 10,000 passengers with “security delays,” missed flights, or ritual humiliations, no one will be fired, although the cost is still very real. The traveler complains but eventually moves on.
Auditors, supervisors, and agencies have significant responsibility when they miss real threats, but they have essentially no responsibility when they treat everyone and everything as if they were a threat. Predictable outcomes are not a security theater designed to minimize overall harm, but one security theater designed to minimize the specific types of harm that a Congressional investigation might uncover.
Responsibility asymmetry also helps explain the problem of persistent government deficits. Balancing your budget doesn’t have to be difficult. Most people, including elected officials, manage to do it in their lives with such regularity that we hardly pay attention to it. But doing so with current government spending would require all policymakers, including those in their own constituencies, to agree to rein in spending. This is where it breaks down. Restraints only work if everyone follows them.
By comparison, spending also requires cooperation, but this cooperation is much easier to secure than mutual restraint. Every politician knows that today’s spending can make an immediate contribution. They are branded as people who “get results” and are rewarded with ribbon cuttings, press releases, and words of gratitude from voters. However, the bills were introduced much later and were often paid for by taxpayers who were not old enough to vote when the spending was first approved. And this is where cooperation comes into play. Politicians can trade votes in a process known as “logrolling.” That way, everyone can cut the ribbon, receive press releases, and thank voters. No one is campaigning to prevent our grandchildren from paying higher taxes.
All of these examples may seem like different types of failures, but they are all the result of the same problem: asymmetrical responsibility. In each case, it is tangible, attributable, and personally costly from the decision maker’s perspective. The other is invisible, diffuse, and has no consequences. While there may be good reasons to be frustrated by this reality, the solution isn’t to find better people or improve training. It’s about building a better accountability structure.
After all, people respond to incentives.
