Perverse Incentives for Perverse Individuals

Some time back I had a discussion with a colleague that has stuck in my head. Nominally we were talking about the propriety of “sweatshop” factory labor in the third world. I argued that it was better than the alternative, he argued that it was morally unconscionable and shouldn’t be allowed, and I argued that leaving people to a worse alternative was even more morally unconscionable. Then he whipped out a common law analogy, which was something like this:

If you see a person drowning, it’s not acceptable to make them suck your cock in return for saving them.

And here, I guess, is where the philosophic mind and the economic mind part ways. Because while I find it easy to agree that a person who would stare at a drowning person and say, “I’ll toss you that life ring, but only if you suck my cock when you get out of the water” is a morally unconscionable person, do we really want to give that that morally unconscionable person an incentive to say, “I’d save you if I got a blow job out of it, but since the law says I can’t require that in exchange for saving you, I’ll just leave you to drown”?

About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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31 Responses to Perverse Incentives for Perverse Individuals

  1. Murali says:

    I wonder how much of a substitution effect there would be. I suppose it is possible that some large percentage of perverse people are willing to save the drowning person anyway, but simply use the opportunity to wrangle an extra blow job or two. Now, as long as this fraction is not 1, banning people from making such bargains would reduce the number of people saved. Presumably, there is some margin at which we are willing to increase the chance of being saved without having to blow someone while tolerating a small decrease in overall chances of being saved.

    And that just deals with expected utility. Substitute money for blowjobs and you get distributional consequences as well. Suppose 200 people are drowning, and with a ban on making trades for rescue, only 100 are saved. Of these 50 are poor and 50 are rich. Compare this to a situation where there is no such ban. This time 120 people are saved, but of these 80 are rich and 40 are poor. Suppose further that the total number of rich and poor in need of rescue are the same in both cases. Then, even if allowing such exchanges increases the total number saved, the poor fare worse in absolute terms. Thus, if you think that how the worst off fare is crucial to justifying social rules, then here is a good reason to enact such a ban if we suspect that the substitution rate is very high.

  2. madrocketscientist says:

    I”m pretty sure it is illegal to ask for a blowjob as compensation for a rescue, but asking for cash to reimburse the rescuer for his costs is legitimate.

  3. lancifer666 says:

    Luckily, I’m a pretty good swimmer.

  4. Troublesome Frog says:

    madrocketscientist, I’m pretty sure the law isn’t on your side trying to collect anything they agreed to give you before you pulled them into the boat.

    In any case, I’m definitely not on the “close down the sweatshops” side of the fence. The one thing sadder than a sweatshop is a starving subsistence farmer who can’t take care of his family. However, I think the bad taste in our mouths simply comes from the massive surplus the owners get from the workers. I mean, the labor cost of a denim shirt isn’t really what’s driving the price, and the companies running the shop could easily provide a much better living standard than they do. I don’t really buy into the notion that the cost of working fire escapes will bankrupt low-wage American denim shirt purchasers.

  5. ppnl says:

    The problem isn’t the very low wages. If there is money in it then others will move in and drive wages up. International trade has lifted more people out of poverty than all the job programs and low interest international loans combined.

    The problem is that a company with a larger GDP than the country they are moving into can corrupt the system in there own favor. They may not only pay low wages but act to preserve low wages. They may destroy the local environment and contribute to local corruption to the point of buying elections. Any time there is an imbalance in power there is a tendency to abuse that power and to act to preserve that power.

  6. lancifer666 says:

    “I’ll toss you that life ring, but only if you suck my cock when you get out of the water”

    It gives a whole new meaning to “Going down for the third time.”

  7. madrocketscientist says:

    TF

    I can’t tell a drowning man he has to agree to pay me $100 for me to toss out a life ring. But I can ask that he pay me for the fuel it took me to get my boat to him so I could toss the ring. In short, I can not profit from my efforts to rescue, but I can be reimbursed my costs.

  8. lumbercartel says:

    There are societies where demanding a BJ as a requirement for saving someone’s life would be much, much more costly than the cost of a BJ on the open market. Reputation generally has value, after all [1].
    There are also societies where that cost is negative: the rescuer would derive net social benefit from being so tough, virile, dominant, etc.
    In the first type of society, there is an economic incentive to treat workers well: a marketing advantage over competitors who treat them worse. In the second, there is not only a direct cost-reduction incentive to treat them poorly [2], but the marketing incentives [3] would also run the other way.
    I find these discussions enlightening, in the same way I find the public preference for CAFE regulations over market-based efficiency incentives enlightening.

    [1] Of course, the rescuer could include a “and never mention it” clause to the agreement. Recovery from a welshing rescuee might be problematic, however.
    [2] Which is usually less than might be supposed. There are reasons Costco is doing better than Sam’s Club.
    [3] Or perhaps stock-marketing incentives. Wall Street rewards abuse of employees, even when it’s manifestly bad business.

  9. ppnl says:

    “…do we really want to give that that morally unconscionable person an incentive to say, “I’d save you if I got a blow job out of it, but since the law says I can’t require that in exchange for saving you, I’ll just leave you to drown”?”

    I really don’t think there is any such incentive. The social validation that is likely to follow saving someones life is probably more attractive than a BJ from a desperate stranger. And it comes without the very real social consequence of being found out. So I seriously doubt very many BJ’s have been exchanged for being saved.

    A more relevant and more common possibility is exchanging a BJ for a promotion to night manager at a Taco Bell. This is likely against most corporate policy’s and illegal everywhere in the US. I don’t see this law creating any perverse incentive. Well maybe a few blackmail cases by the BJ provider but that can be seen as a rebalancing of power.

  10. pierrecorneille says:

    James,

    I think I see your argument here. And yes, in the universe of people who might be inclined to extort a blowjob in exchange for saving someone’s life, there are some who, along some margin, would look at the law in those desperate seconds and decide that the risk of saving someone without the bj just isn’t worth it. (I’m not sure that someone who engages in the extortion is the type to be overly meticulous about the laws he observes. I’m also inclined to think that the type of person who would refuse to grant a lifesaving measure without a sexual favor might be inclined in other circumstances to take those favors by force. But that’s another point.)

    I suppose that raises two questions before we actually settle on a policy. 1) How big is that universe? 2) How big is that margin?

    I realize that’s not your complete point. Your larger point, if I understand it aright, goes like this. Laws, rules, etc., create incentives, mostly by channeling, but also limiting, the available choices. And the more choices people have, all things being equal, the better off they are. The first statement is probably a statement of fact or logic that can be proven or demonstrated. The second statement is one of values. And if I don’t sign on to that statement categorically, I at least agree with it by and large.

    But–and although I do realize it was your colleague and not you who raised the example–I do think these types of examples are poor tools to make the argument. They reflect a type of swagger that I sometimes see among economists that turn non-economists off and make it easier for non-economists to refuse to listen.

  11. Murali says:

    There is a huge difference in the levels of desperation and immediacy as they figure into sweatshop labourers and drowning persons. Potential sweatshop labourers are chronically poor, and subjecting them to sweatshop work conditions, while not the most fantastic thing that could be done to them is not an actual harm per se. That is to say, people who are offered sweatshop jobs are not given a different situation which consists of various benefits and harms along different dimensions which have to be traded off against one another. On the drowning case, a person has to take a severe hit to his or her self esteem etc in return for an increased chance of survival. The drowning case is unconscionable because we are imposing a further and unnecessary cost on a person whom we have a natural duty towards. On the sweatshop case, our duty of beneficence is not nearly as stringent (because they are not in any immediate danger) and all we are doing is at most failing to provide more for them. And what is required from the labourer while unpleasant is not unreasonably so. The two examples are nowhere near alike.

  12. J@m3z Aitch says:

    I like that for the most part this discussion focused on more nuanced issues about the actual incentives at play, rather than on just the “it’s a moral outrage” tack that my colleague took. I’m not big on moral outrage. The approaches here provide a lot more thoughtful insight than simple moral outrage does.

    Murali, “ The two examples are nowhere near alike.
    Blame my colleague, he chose the drowning person example. ;)
    My take would that they’re not alike, because the rescued man could so easily renege, and even in a country that takes oral (get it?) contracts seriously, I suspect there’d be little judicial desire to enforce, and even if there was the person could substitute a compensating fee for non-performance, so they wouldn’t actually have to suck.

    a person whom we have a natural duty towards.
    I don’t think we do. I think it’s an admirable thing to save a drowning person, but I don’t agree that it’s a duty. Our laws–at least in the U.S.–reflect that.

  13. madrocketscientist says:

    James is right about US law. No one has any legal duty to help another, be it a private citizen or a public servant (cop, firefighter, emt). The courts in NY just ruled for two cops who were sued because they hid in a locked room while a private citizen fought & subdued a murderer. They have no obligation to help.

    What we do have a Good Samaritan laws, so if you do try to help someone, the bar to sue you for not getting it exactly right is pretty high (e.g. if you perform CPR on a person & break a few ribs, they can’t easily sue you later for medical expenses & pain & suffering from the broken ribs).

  14. lumbercartel says:

    “a person whom we have a natural duty towards.”
    I don’t think we do. I think it’s an admirable thing to save a drowning person, but I don’t agree that it’s a duty. Our laws–at least in the U.S.–reflect that.

    I profoundly hope that discussions here won’t go down the rathole of conflating US law with ethical principles, and in particular won’t assume that anything that is legal in the USA must automatically be ethical.

    Absent that confusion, there is no necessary conflict between the statement that we have a “natural” (read: “moral”) duty of beneficence and that there is no such duty in US law.

    As someone who spends a fair bit of time (and treasure) every year providing volunteer emergency services, this is a bit less hypothetical for me than for some.

  15. Murali says:

    Well, we don’t necessarily want our laws to perfectly reflect our natural duties. We couldn’t will as a universal law that no one help us when we are in desperate need even if it would cost them little and they are nearby. So, the idea that we have some minimal duties of rescue towards very desperate people who are right in front of us at little cost to ourselves seems difficult to argue against. It doesn’t follow from this that we have to get the state involved in coercively enforcing said duty. We cannot therefore infer from the lack of state enforcement of an alleged duty that no such duty exists. Same as we cannot infer from a given state’s failure to criminalise adultery that people don’t have a natural duty of fidelity towards their spouses. People ought to be faithful towards their spouses, but it would be horrific if the state got involved in enforcing it.

  16. madrocketscientist says:

    Unfortunately in the US, there is a disturbing trend to try and codify certain moral/ethical duties into law.

  17. Matty says:

    On sweatshops I have to say the things that disturb me most are not the low wages or long hours. They are the things that look more like vindictiveness on the part of supervisors than actually keeping costs down. I’m thinking of locking existing fire escapes to prevent anyone taking five minutes fresh air in the middle of a shift. I’d struggle to believe an argument that it is necessary to lock the fire escapes that you already have in order to maintain a competitive advantage.

  18. J@m3z Aitch says:

    @lumbercartel,
    there is no necessary conflict between the statement that we have a “natural” (read: “moral”) duty of beneficence and that there is no such duty in US law.

    True, and good point. My point of reference there was my colleague’s use of a legal example. But that doesn’t diminish the validity of your point.

    @MadRocketScientist,
    Unfortunately in the US, there is a disturbing trend to try and codify certain moral/ethical duties into law.

    Which is part of the reason I’m eager to emphasize that I don’t believe any such moral duty exists.

  19. J@m3z Aitch says:

    Matty,
    Yeah, and I think the primary problem is that those factories aren’t actually run by western companies. Not that western firms are perfectly enlightened and only care about the welfare of their workers, or some pie-in-the-sky idea like that, but they have a significantly greater amount of enculteration into the idea that some things just aren’t right, so that you’re more likely to get better, if still not ideal, treatment from them. Your local Chinese or Bangladeshi businessman is not inherently a worse person than a western one, but has a different enculteration.

    But as the real world of supply chains works, you have companies like Disney that have contracts with something like 12,000 factories around the world. They’re not going to operate them all themselves, nor can they even monitor all of them that closely.

    The big factors that produce change are, as economists are wont to argue, growing wealth and the attendant demand for non-financial “benefits,” like unlocked safety exits, and, as economists are not all wont to argue, irritating and often very naively unrealistic activists, who despite often being utter fools, can often effectively threaten the value of companies’ brand names to the point where the companies respond by making stronger demands of their suppliers.

  20. D. C. Sessions says:

    Alas, very low on the list is any regard for the oft-demonstrated principle that treating your employees well is good business.

    Some of the common reasons are shortsightedness and agency issues — the people actually making key decisions aren’t presented with the same incentives as the business itself. Related to that, even when the owner is the immediate supervisor, is that there are other potential rewards besides economic ones. Power is, after all, sweet — and thus locking the fire escapes to emphasize the power one holds over the slaves.

  21. Matty says:

    The big factors that produce change are, as economists are wont to argue, growing wealth and the attendant demand for non-financial “benefits,” like unlocked safety exits, and, as economists are not all wont to argue, irritating and often very naively unrealistic activists, who despite often being utter fools, can often effectively threaten the value of companies’ brand names to the point where the companies respond by making stronger demands of their suppliers.

    Well I hope my unrealism isn’t completely naive but that’s about where I stand. If we want to improve things for these workers pressure from the consumer end, to raise standards not to close the factories, is the best way for outsiders to do it. I’d also like to see consumer activists talking more to people like unions in sweatshop factories both to co-ordinate action but more importantly as they are more likely to know what the workers actually want.

    treating your employees well is good business.

    If you mean that content employees are more productive then I suspect this may be more limited in application that we might like. It rather relies on the idea that workers are currently doing well enough not to get sacked but could do sufficiently better to raise their value to the employer. This may be true of white collar or skilled technical jobs but maybe not for low end factory work. I suspect you either sew enough shirts at the basic standard to keep your job or you don’t. There’s is little room for individual quality improvements when you are selling in bulk so the only potential way is if better treatment makes workers produce more shirts per hour and I suspect the machines and raw materials are already bigger limits on the speed of production.

  22. J@m3z Aitch says:

    matty,
    Well I hope my unrealism isn’t completely naive but that’s about where I stand.
    You don’t strike me that way.

    If we want to improve things for these workers pressure from the consumer end,
    It’s indirect pressure, for the most pary. Consumers mostly won’t expres voice, they’ll just exit (referencing Hirschman’s Exit, Voice and Loyalty). Importantly, they don’t even have to care, they just have to worry about how others will look at them if they’re wearing the firm’s logo. That’s why the unrealistic protestors can be effective–they don’t have to persuade people, they just have to make them wary of what others think. Because the curious thing about apparrel firms is that their real product isn’t the clothing, but the image associated with the brand name.

    . I’d also like to see consumer activists talking more to people like unions in sweatshop factories
    They’ve tried, and are trying, but with minimal success. There just aren’t unions in these shops yet, and little success in efforts to encourage them. The laws, politics, culture, and level of economic development mostly isn’t there yet. But outside groups are trying, as best they can in infertile soil.

  23. D. C. Sessions says:

    If you mean that content employees are more productive then I suspect this may be more limited in application that we might like.

    Industrial accidents cost productivity — rather a lot. Even minor ones or chronic stress ones slow down production. Then there’s the (again demonstrated in a recent paper) adverse impact of employee mood on alertness, which ties back to not only accident rates but prevention of purely production-related issues such as machine condition.

    I profoundly doubt that this amounts in net to even triple-digit percentages of differential per-employee profit. But it doesn’t take much to justify unlocking the fire doors.

  24. J@m3z Aitch says:

    Not unlocking the fire doors is, in a way, similar to a story I was told recently, that last year our college’s vendor for food services started re-dating salads that had expired, rather than removing them from shelves, with the consequence that there was a brief “epidemic” of food poisoning.

    Why do we put expiration dates on salads? Because they’re going to expire. Re-dating them ignores the very principle behind bothering to date them in the first place.

    Why do we create fire doors? So people can escape in case of emergency. Locking the fire doors ignores the very principle behind bothering to date them in the first place.

    You see a lot of stupid behavior in businesses, though, because there are so many people who are ignorant and thoughtless. It’s against the law to block or obstruct fire doors and access to fire extinguishers. But look closely when you go through your local stores, and you’ll see that employees aren’t always faithful to this rule, and management–which presumably is better trained–are either surprisingly ignorant of the rule, or just careless of its importance, or not bothering to monitor, or too overworked to monitor. Until, that is, the Fire Marshall announces his inspection visit, at which point compliance dramatically improves, but then slowly declines over time until the next announced visit.

    I’m a big fan of regulating via unannounced visits.

  25. D. C. Sessions says:

    I’m a big fan of regulating via unannounced visits.

    I don’t see a lot of point in scheduled ones, that’s for sure.

    Of course, having a fire drill when it’s -5F outdoors and there are kids in swim class puts some stress on the “follow the rules, no exceptions!” mentality. Especially when the rules include not allowing kids to grab a coat, put on shoes, or otherwise protect themselves from windchills below -30F, and when teachers aren’t allowed to let the dripping-wet kids to take shelter in teachers’ cars …

    Sorry, OT. But that really hit one of my buttons.

  26. madrocketscientist says:

    Surprise visits, or regular visits that happen often enough to counter bad habits.

    In my misbegotten youth, I worked as the cleanup guy at a small butcher/slaughterhouse (one butcher, half dozen employees). We got inspected every Wednesday & I got a report card. Two bad inspections in a row, and I was out of a job (because the inspector would close us down). Keeping the place clean daily made it that much easier to make sure I passed inspection every week. No one had to tell me that, figured that all out on my own at 16.

  27. J@m3z Aitch says:

    D.C.,

    Is that a real example?

  28. D. C. Sessions says:

    Yes. The good news is that someone eventually had the genius to realize that having a student die from acute hypothermia (or lose feet , fingers, etc. to frostbite) while in custody was not a career-enhancing move.

    The original I had said it was a drill, this says it was a tripped alarm.

    http://dailycaller.com/2014/03/03/school-forces-half-naked-sopping-wet-student-to-stand-outside-frostbite-results/

  29. Matty says:

    Industrial accidents cost productivity — rather a lot. Even minor ones or chronic stress ones slow down production. Then there’s the (again demonstrated in a recent paper) adverse impact of employee mood on alertness, which ties back to not only accident rates but prevention of purely production-related issues such as machine condition.

    Your right, those are things I hadn’t thought of and should give employers incentive to treat people better even in low skill jobs.

  30. Matty says:

    When I was in school we had a case that was almost a mirror of that. Not serious but kind of irritating. The alarm went, the teacher told us all to wait at our desks while she fetched her handbag from the staff room then came back and evacuated the room a good five minutes after the rest of the school had assembled outside. I assume of course that she knew it was a drill so there was no risk but not a great to teach the importance of responding quickly to an alarm.

  31. J@m3z Aitch says:

    Many years ago, my wife and I went to an exhibition basketball game at the University of Oregon. Midway through the game, the fire alarm went off, and a pre-recorded voice directed us all to leave the building. Perhaps because we all knew that the arena had recently undergone some extensive updating to its systems, nobody stirred from their seats, assuming it was just a bug in the new system. We were all looking around waiting for a real-live human to tell us to move.

    In the end, we were right. But I’m still not sure that being right justifies our reaction, and I still find it interesting that we were going to take the word of some minimum-wage employee with a pink “Event Staff” t-shirt over the word of a state-of-the-art warning system.

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