Wednesday, 21 February 2007

Bureaucrats with Bad Incentives

Perhaps ASLI’s Centre for Public Policy Studies should start considering the dire effect of ‘behavioural public choice’ before their next paper (if any other worthy ones are going to ever come out again) is conveniently considered rubbish again by our wise bureaucrats.

Dum dee dum.

From Jane Golt:

The post below also applies to behavioural economics, which the left seems to believe is a magical proof of the benevolence of government intervention, because after all, people are stupid, so they need the government to protect them from themselves. My take is a little subtler than that:

1) People are often stupid

2) Bureaucrats are the same stupid people, with bad incentives.

And these are some quality comments:

Milton Friedman described 4 classes of spending:

1) You spend money on yourself. You care about price, but also about value.

2) You spend money on a present for someone else. You care about price, but not so much about value.

3) You spend money on yourself, from an expense account. You really care a lot about value, but not so much about price.

4) You spend government money on someone else. You don't care about value, and don't care about price either.

Moral: If you get "market failure" with type 1 spending, you can only fail more spectacularly with type 2,3 or 4 spending.


You've hit the problem on the head. Jerry Pournelle, arguably the first blogger, has his Iron Law of Bureaucracy:

"Pournelle's Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself. Examples in education would be teachers who work and sacrifice to teach children, vs. union representative who work to protect any teacher including the most incompetent. The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions."

Indeed. Sigh.



feliz said...

“ You spend money on yourself. You care about price, but also about value. “..

sigh.. not always true.. very often i have found myself buying things even when i know i shouldn't .. all at the excuse of having plastic to satisfy emotional shopping..

but seriously, this is a non-issue compared to excessive spending by govt. without caring for price and value for the country's benefits.

..the excesses and cost overruns of some govt bureaucracies are glaringly wrong .. steps must be in place for transparency and accountability by these insane spending

Elanor said...


I can't agree with you more with the transparency and accountability part. Perhaps I will blog more on that.

And for your comment about plastic... alas, I share your sentiment. I always delude myself into thinking that I am merely using it as a medium of transaction, but I know well this is a bias that I need to overcome...


Anthony said...
This comment has been removed by the author.
Anthony said...

I like the articles, keep up the good work Elanor!

zorro said...

Zorro got zapped year ago and dont do plastic anymore....paper more biodegradable. Economics is way above my head. Reciprocating because you welcomed me into blogtown. Cheers darling.