In the late 1700s, life in Britain was hard. Machines had started to take over jobs, cities became overcrowded and the poor had to resort to stealing to survive. Minor crimes such as cutting down an orchard tree or stealing livestock were punishable with prison time.
The prisons quickly became full and the British government resorted to hiring captains of merchant vessels to transport prisoners to English colonies in Southern Australia.
The only problem is that many of the prisoners were dying on the long journey over. In one horrific voyage about 1/3rd of the men died while the rest arrived starving sick and beaten.
This caused a huge uproar back in England, so the government tried to fix it by forcing captains to bring a doctor, lemons to prevent scurvy, having inspections and even raising the salaries of captains - all to no avail.
Finally, an economist had a new idea on how to approach the problem. Instead of paying for each prisoner that walked on the ship in Great Britain, the government should only pay for each prisoner that walked off the ship in Australia. As a result, the survival rate for prisoners shot up to 99%!
So what does this teach us? Incentives matter! Our behavior and attitudes are all shaped by obvious, and sometimes, not-so obvious forms of incentives.
For example, if a friend offers to help you move, his incentive might be simply in how it makes him feel in doing something good. However, if you offer to pay him, then that could not only change the nature of your relationship but might make him more skimpy on how much time he’s willing to help you.
Equally so, companies who rely too much on raises and bonuses for their employees are likely to see an adverse relationship between money and the productivity over a certain threshold.
So the next time you need a friend or co-worker help you with something, consider what’s the best incentive you should offer. A good rule of thumb is to align self-interest with social interest.
🍺 to a great week ahead!