I really want you, resolute reader, to read this entire story. Yes, that’s you. And it’s really important. So what will it take to make it happen? Maybe a personal note of appreciation? Or a Starbucks coupon? Or the guarantee that your favorite student will attend Duke tuition-free?
What makes this a vital read is that it’s all about your behavior. It’s all about that big, important thing you did—or had someone else do—and how it resulted from incentives. Maybe it was carpooling so that you could zip along in express traffic lanes during rush hour. Or maybe it was contributing to a charity to take advantage of a tax deduction. If you’re a teacher, perhaps you offered extra credit for students who speak up. If you’re a New Jersey-based company, maybe you’re pledging to add jobs and tap into $1.57 billion in state tax breaks. Or maybe it was a disincentive that moved you: the tax that made cigarettes too expensive, or the parking fine that kept you between the lines.
We may not always focus on the incentives driving our actions, but they’re too prevalent to ignore as something of scholarly interest, says Ruth Grant, a Duke political scientist and senior fellow at the Kenan Institute for Ethics. Her new book, Strings Attached: Untangling the Ethics of Incentives (Russell Sage Foundation and Princeton University Press), looks at incentives as the tool we reach for increasingly to create change, whether in government, in education, in health care, in private life, and between and within institutions of all sorts.
Incentives could be viewed as a form of trade, she says, and a trade is inherently ethical; it’s a voluntary transaction that will occur only if both of the parties involved believe that they benefit from it. But not all incentives and disincentives are alike. Some we would recognize as bribery or blackmail. Others straddle a borderline between persuasion and coercion—a borderline that might change depending on someone’s position in life. In the book, Grant notes that in North Carolina, at one time, a licensed driver of high-school age could lose that license temporarily if he or she were failing a course. On hearing of that policy, her young daughter told her, “That’s a good idea.” Her teenage son said, “That’s blackmail!”
Grant says she’s not necessarily an enemy of incentives. “There are lots of perfectly legitimate uses of incentives. But we shouldn’t be complacent about them; we ought to be a little bit worried about the ways we can be misled by just embracing incentives as the quick fix for every kind of problem. We’ve gone overboard in thinking that this is the only way to handle our social and public issues.”
One of the ethically fraught illustrations of incentives, she says, is paying children for earning good grades. (Part of the issue, she points out, is that grades don’t always correlate with learning, so the incentive may be for an easy-to-measure but still less-than-ideal outcome.) Grading-based incentives may be especially problematic when the payments come from parents and not school systems, she says. “What does it say about the relationship if the parent doesn’t have better ways to influence the child’s behavior than money? I do think it is likely to send the wrong message. If a child is underperforming in school in relation to his or her abilities, there could be a lot of different reasons why. Financial incentives suggest that the parent only cares about results and wants the child to improve, not for the child’s sake, but for the parent’s.”
Some would argue further, Grant says, that paying kids for one thing undermines the roles and responsibilities of family life: “If you pay your child to mow the lawn, they’ll start to expect payment for washing the dishes.”
It was a classroom exercise that sparked Grant’s incentives investigation. She was teaching on the subject of ancient Greek political philosophy. In the opening scene of Sophocles’ Philoctetes, Philoctetes is holding onto Achilles’ bow; the Greeks need to release the bow from Philoctetes’ grip to defeat the Trojans. Odysseus is trying to persuade the noble young son of Achilles, Neoptolemus, to help him retrieve it deceitfully. Neoptolemus considers it, well, more noble to use force than to use deceit. Class: Please discuss.
So one of Grant’s students wondered, What about some incentive? And Grant wondered, Why not? Everyone has his price, presumably including every Greek, though, for some reason, not in Sophocles’ play.
Grant takes a big jump in the book from ancient Greece to early twentieth- century America, when the term “incentive” appeared in different spheres of activity at about the same time—all of them concerned with some form of social engineering. One of those places was industry, where efficiency-minded engineer Frederick Taylor was advancing scientific management as a new tool for boosting production. Scientific management involved measuring precisely the amount of time needed to complete each element of the production process, dividing tasks in a rational manner, and making sure workers understood the expectations for accomplishing their tasks. Through the right techniques, incentives among them, experts could engineer a situation to make you ideally productive.
“Incentive” also had a place in the developing field of behavioral psychology. If you ever had the incentive to plow into a psychology textbook, you’d remember the name B.F. Skinner. According to Skinner and other behavioral theorists, you’re basically a flesh-and-blood stimulus-response mechanism, entirely reactive to external stimuli—and therefore almost infinitely malleable. Through so-called “operant conditioning,” then, you would learn to behave in certain ways in response to positive reinforcement of those behaviors.
Today, Grant writes, incentives aren’t just seen as expressions of social-engineering principles. The term “incentive” has come to be used broadly and indiscriminately, often including market forces—and often removed from ethical considerations.
Probably nothing illustrates that more vividly than the financial meltdown of 2008, which began when the financial- services sector manufactured and sold toxic debt securities for trillions of dollars. The meltdown, of course, pushed the world’s financial system to the brink of disaster. At least as critics see it, a big part of what drove the sale of worthless assets was a misshapen incentives culture pervasive in the securities industry.
One of those critics, William D. Cohan ’81, wrote in Bloomberg View in February, “What is painfully clear...is that the incentive system on Wall Street that rewards bankers and traders for the revenue they generate by constantly selling whatever comes across their desks, regardless of its quality, is terribly, terribly broken.” With a nod to Skinner, he observed, “People are simple: They do what they are rewarded to do, and they will continue to do that over and over again until they are rewarded to do something else.”
Monetary incentives—say, paying for grades—can crowd out less mercenary motives, “producing a negative effect on character as well as on outcomes.” The behavior becomes driven by a sort of calculus of pain and pleasures. According to Grant, “In an educational setting, if monetary incentives are employed, students learn that the only question it is important to ask is, "What’s in this for me?"
Cohan, a former investment banker and the author of Money and Power: How Goldman Sachs Came to Rule the World, added, “Now, four years after the crisis started—and despite the Dodd-Frank law intended to reduce the risks on Wall Street—not one thing has changed in what bankers and traders are rewarded to do. Until that happens, you can forget about preventing another crisis on Wall Street.”
That verdict from Cohan received a kind of validation with the very public resignation from Goldman of one of its executives, Greg Smith. The “quick ways to become a leader,” he wrote in his instantly famous New York Times op-ed column, included trading “any illiquid, opaque product with a three-letter acronym” that would return a profit to Goldman. “Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.” Beyond the realm of moral outrage, it’s hard to say what incentive would drive you to make such a conspicuous gesture of repudiation. It did, though, reportedly land Smith $1.5 million book contract.
Around the same time, an opaque three-letter organization—the NFL—was wrestling with its own incentives-oriented controversy. The league sidelined the coach of the New Orleans Saints for a year for his role in a dramatic application of incentives, dubbed a “bounty program” by the news media. The program promised money to players if they injured opponents and knocked them out of games. It ran from 2009, the year the Saints won the Super Bowl, to 2011, and it included bounties on four quarterbacks. In one e-mail note that turned up in the investigation, a player confirmed that the Saints’ defensive coordinator had “put me down for $5,000,” the agreed-on rate for knocking out the quarterback for the Green Bay Packers.
Grant writes that the application of incentives can be judged by whether it serves a legitimate purpose, by whether it allows a voluntary response, and by its effect on the character of the parties involved. In real life, of course, it’s not always easy to make such broad judgments. She points out that cost containment in health care is a legitimate purpose; so is delivering the best possible care to you, the patient. To the extent that a cost- containment imperative creates incentives for your doctor to under-treat you, it’s bribery and so isn’t legitimate.
There’s another layer of ethical complexity, Grant says. Does this incentive system work better than other options? Incentives for recruiting you as a subject of medical research may work no better than convincing you of the virtues of your participation. Then, is it fair? When the large company you work for receives incentives—that is, taxpayer money—to re- locate, presumably the idea is to promote economic growth. But it may be that the government is giving you an unfair business advantage. And finally, are there strings attached, perhaps to the point that someone is unduly influencing you or is getting something at your expense? If Greg Smith is to be taken as credible in his indictment of his former firm, there were endless strings attached to promotion through the ranks of Goldman Sachs.
If there’s an even more dramatic strings- attached scenario, it’s the bailout of national economies by international institutions. As a condition for receiving bailout aid from the International Monetary Fund, Greece had to agree to cut down on rampant tax evasion—probably a good thing—and to drastically slice away at its public sector—maybe a good thing by standard thinking, but with the consequence of a shrinking economy. And determining what counts as “voluntary” can be a vexed question. Greece seemed to have little choice in the matter of the bailout.
As Grant notes in the book, over time the loan conditions have become more invasive; they have multiplied as the purposes of the IMF have changed and expanded. What was once the limited goal of solving temporary liquidity problems has become the broader goal of fostering sustained economic growth. Such incentive programs can do good things, Grant says: When the IMF imposes loan conditions, it may be providing the incentive for a government to change the behavior that created the problem in the first place. But agreements that can be considered voluntary seem less than voluntary when private capital is no longer forthcoming and a nation’s economy is in crisis. It also may be tough to reconcile democracy or popular participation with economic policies dictated by outsiders.
Dependency relationships, including the use of incentives to recruit poor and vulnerable populations, can land research in ethically suspect territory.
And there’s an issue of effectiveness: Reaching for incentive programs as a tool for solving complex problems often involves a failure to appreciate the limits of power. Another hard-pressed government, Ireland, agreed to tax increases in return for the incentive of some $90 billion in international loans. But the government acknowledged that around half of Ire- land’s estimated 1.6 million homeowners failed to pay a new property tax by this year’s March 31 deadline.
Back on the familiar home front, Grant questions the effectiveness—and the fair- ness—of plea bargaining. She notes in the book that less than 10 percent of felony prosecutions actually go to trial; the other 90 to 95 percent are settled by a plea of guilty by the defendant. The Supreme Court acknowledged the prevalence of plea bargaining in a March ruling: Criminal defendants have a constitutional right to effective lawyers during plea negotiations. In writing for the majority, Justice Anthony M. Kennedy noted, “Criminal justice today is for the most part a system of pleas, not a system of trials.” He added, “The right to adequate assistance of counsel cannot be defined or enforced without taking account of the central role plea bar- gaining takes in securing convictions and determining sentences.”
The role may be central, but that doesn’t make it desirable. Plea bargaining—through which a defendant agrees to plead guilty in exchange for a reduced charge, a reduced sentence, or both—undermines the purposes of the criminal-justice system, Grant says. And so it undermines the legitimacy of the system.
As Grant sees it, a plea bargain always gives you, as the defendant, either more or less than you deserve. In principle, then, it is “an inappropriate means toward the end of meting out justice.” It’s hardly a meaningful expression of autonomy. “Either the defendant is guilty but gets off easy by copping a plea, or the defendant is innocent but pleads guilty to avoid the risk of greater punishment.” To make matters worse, punishment is distributed inequitably. If you’ve committed the same crime in similar circumstances as someone else, you’re still likely to be offered different deals. Or, because you’ve exercised your right to trial and someone else didn’t, you’ll see different outcomes.
When the legitimacy of the system is undermined, the effects ripple through the society, Grant says. “Anyone having contact with the criminal-justice system is affected. A victim of a crime that could be described as kidnapping and assault with a deadly weapon is left bitterly cynical when his assailant is caught and charged with simple robbery, which puts him back on the streets in a few months. People living in high-crime communities, which may have the greatest contact with the police and prosecutors, become distrustful and disaffected. This is not a trivial consideration in judging the ethics of plea bargaining.”
There’s nothing trivial, in Grant’s view, about another incentives area she scrutinizes, recruiting research subjects. The issue is sometimes clouded by the choice of words used to describe the transaction. “Research participants” or “participants in a study” sound like active agents with a certain dignity, she writes in the book. “Subjects of medical experiments” are passive beings who will be acted upon by others: That language makes the ethical problem more apparent.
“Ideally, volunteers are those who would willingly join in the research enterprise and be highly motivated to contribute to the progress of medicine,” she writes. But what if there are not enough volunteers? Well, if the risks are unreasonable, it would be unethical to ask anyone to take them regardless of whether they are asked to volunteer or are offered incentives, Grant says. If the research project involves reasonable risks in relation to benefits, offering incentives to recruit subjects would not raise ethical problems.
The proponents of incentives in research “are certainly correct that it is a voluntary action when a very poor person agrees to participate in research in ex- change for a large sum of money,” Grant writes. “But those who characterize this sort of choice as an undue inducement also have a point.” In general, she adds, incentives always are employed to induce individuals to do what they might not do; the ethically suspect incentive is used to induce individuals to do something to which they are strongly averse. So dependency relationships, including the use of incentives to recruit poor and vulnerable populations, can land research in ethically suspect territory.
A bonus for completing an innocuous research study—perhaps filling out a simple questionnaire on several occasions—may pose no ethical problems. But if the research is painful, debilitating, or distressing for the subject—repeated biopsies, for example—a bonus can be seen as representing “undue influence,” Grant says.
Respect for persons, Grant says, is an ethical imperative and “requires refraining from making seductive offers—offers that ought to be resisted in some sense.” And even outside the realm of recruiting research subjects, if you hook someone—say, your child—on performing for an incentive, he’ll perform less well and lose interest sooner than a child who is not rewarded. The incentive diminishes the intrinsic motivation. In the book, Grant offers a global assortment of examples from ordinary adult life. British women offered cash to donate blood were almost 50 percent less likely to step up as donors than women who were asked and were offered nothing. Swiss citizens were significantly less likely to accept having a nuclear-waste facility as a new neighbor if the arrangement involved monetary compensation. Indian research subjects offered large bonuses to complete simple tasks performed less well than subjects given smaller bonuses.
Not all incentives and disincentives are alike. Some we would recognize as bribery or blackmail. Others straddle a borderline between persuasion and coercion.
Sometimes kids and other recalcitrant individuals might need incentives as basic motivators, says Grant: With the super-recalcitrant, maybe there’s no other way to inspire school attendance. “But there could be all kinds of other avenues. Even within the category of incentives, giving students cash to perform is totally different from giving students scholarships, even if it’s the same financial value. If you offer students scholarships, what you’re saying is, what you get for committing to education is more education, and education is a wonderful thing. If you give them cash, you seem to be communicating the message that education in itself is valueless—that you would only do it if you could get something else of value to compensate for wasting your time.”
Incentives used to motivate your children to learn are “centrally involved with the character question,” Grant writes. And a concern with character “involves encouraging children not only to do the right things but also to do them for the right reasons.” Monetary incentives—say, paying for grades—can crowd out less mercenary motives, “producing a negative effect on character as well as on outcomes.” The behavior becomes driven by a sort of calculus of pain and pleasures. According to Grant, “In an educational setting, if monetary incentives are employed, students learn that the only question it is important to ask is, ‘What’s in this for me?’ And, not surprisingly, this leads to an increase in cheating as well.
“This is a general result of the use of incentives. Where people are paid to give blood, more of them will lie about their health status. Where teachers’ incentives are tied to students’ test performance, more teachers will change their students’ answers on the exam sheets. Where students work in an environment that values only extrinsic rewards for learning, cheating goes up.”
All of which means that if you embark on a reading encounter—say, reading a story about incentives and ethics—without the lure of incentives, that’s a good thing. It’s good for your learning, and it’s good for your character. Revel in your standing as a responsible agent. Recognize that you resisted the challenge to your freedom of action. Feel virtuous for reassuring yourself that a Starbucks coupon wouldn’t sway your habits.
That single coupon could be an easy- to-ignore incentive. What about a full week’s worth of Starbucks coupons to satisfy a latte imperative? That could make you feel like Greece—boxed-in and finding it impossible to say no, whatever strings are attached.