Incentives Matter, at Any Age

This article first appeared in the Fall 2006 issue of Impact.

My childhood memories of chores around the farmhouse are more than just fond reminiscence. They laid the foundation for my understanding of a crucial economic truth: incentives matter.

When I was very young, I did my chores because I risked punishment if I did not. My parents believed in discipline, which was enough to encourage me to work. A negative incentive is still an incentive.

Mom and Dad later shifted to a simple allowance formula. If I dusted the entire house, I would receive 25 cents. Completing another chore meant another payment. The more chores I did, the more allowance I earned. Never was I so excited to dust, vacuum and wash dishes. The glee I expressed on my first payday confirmed to Mom and Dad that I was learning.

I began to cost Mom and Dad so much that they changed the formula — a fixed payment for all my weekly work. But the reality of incentives did not change. With less marginal incentive, I did only what was expected of me, and with less enthusiasm.

My freedom-loving parents, by merely managing their household, had taught me vivid personal lessons about incentives that no classroom could convey.

Incentives matter at any age. Excessive taxes encourage people to work less or move to a location where they can keep more of what they earn. Regulatory burdens encourage businesses to move from a region or avoid it altogether.

Our work highlighted in this newsletter — focusing on property rights, education spending, economic development and government growth, to name a few — helps educate residents on sound policy. A common theme is that incentives matter. When policymakers get that wrong, their plans and programs are often counterproductive. When they incorporate a sound economic understanding of incentives, they foster economic growth, prosperity and opportunity.

Public officials rely on the Mackinac Center for policy ideas built upon economic truth, not wishful thinking or partisan gain. Your support has made that possible for 18 years.

Justin W. Marshall is Director of Advancement for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.