Friday, December 24, 2004

Incentives matter

Reading a recent post from Marginal Revolution, he links to a study done by Reason a group promoting "a free society by developing,applying,and promoting libertarian principles,including individual liberty,free markets,and the rule of law." That sounds well enough, and i happen to support their world view.

In the course of promoting new private schools, they quote Adam Smith and point out that every person has the ability to make better and wiser choices in their life than any statesman does. They go one step further and say that parents also have the incentive to choose a school appropriate for their children.

"Parents have strong reason to decide for themselves whether a school is appropriate for their child. More than anyone else, parents have both the motivation and the local knowledge to make choices for their children about the school’s bundle of characteristics."

I would like to point this post i made a little while ago. In that post, i link to a fox article where it points out that "studies show that most parents aren't taking advantage" the opportunity to move to better schools.

To sum this up i would like to link to Marginal Revolution post.

"To increase savings, we don't have to engineer a fundamental transformation of the American character. Instead, we may just have to tweak the institutional levers that have the effect of channeling cash in different directions.

As Professor Laibson said: "People will save if it's on the path of least resistance.""

Incentives, in my mind, are as important as removing disincentives. Some cases disincentives can be removed, in others they cannot. In the savings example, you could not tax 401k's or just create a path of least resistance, which i find appealing.

In the school example, you cannot make the ride to a better school any shorter. You can only offer incentives to make the trip worth it. Which in my personal opinion, the education should be its own reward.

I do not know why parents are not taking the opportunity they are given (or even if those studies are accurate or where they were done), but buy making decisions for these parents which YOU think are better YOU still are conflicting with the principles laid down by Adam smith. If the parents do not make good decisions for their children, I AM NOT willing to make them make good decisions.

Reason's study was not about making decisions for parents, it was about providing more opportunity for those good decisions to be made. IF their attempt at fixing the problem fails, where does that leave you as a libertarian?


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