People respond to changes in incentives from "summary" of The Economic Naturalist by Robert H. Frank
Incentives play a crucial role in shaping human behavior. When the cost of doing something decreases, people are more likely to do it. Conversely, when the cost of doing something increases, people are less likely to do it. This simple principle underlies a wide range of economic phenomena. Consider the example of a public policy aimed at reducing carbon emissions. By imposing a tax on carbon emissions, the government increases the cost of polluting. As a result, businesses and individuals have a greater incentive to reduce their carbon footprint. They may invest in cleaner technologies, use public transportation more frequently, or simply consume less energy. In another context, think about how people respond to changes in prices. When the price of a good or service goes down, consumers are more likely to buy it. This is why sales and discounts are so effective in boosting sales. On the other hand, when prices go up, consumers tend to cut back on their purchases. This is why businesses carefully consider how price changes will affect consumer demand. The concept of incentives also applies to the workplace. When employees are rewarded for their hard work, they are more motivated to perform well. Bonuses, promotions, and other incentives can encourage employees to go above and beyond in their job duties. Conversely, when there are no incentives or rewards for good performance, employees may become disengaged and unmotivated.- The concept that people respond to changes in incentives is a fundamental principle in economics. By understanding how incentives affect human behavior, policymakers, businesses, and individuals can better predict and influence outcomes in a variety of contexts. Whether it is reducing carbon emissions, increasing sales, or improving employee performance, incentives are a powerful tool for shaping behavior.
