13 June 2006

Rejigging incentives

As individuals, our activities don’t seem up to meeting the serious environmental and social challenges we face as a society. Our work lives, even if we are in the public sector, don’t appear to contribute much to solving such global problems as climate change and nuclear proliferation. And while we might do a lot, even if we don’t realise it, to help individuals either directly or through tax payments, there does appear to be a disconnect between our work and achievement and the scale of the social and environmental problems we face.

Yet there’s no shortage of skill, talent an ingenuity. To take just my recent experience here in England: you can’t fail to be impressed by the quality of the voluminous journalism about the English team’s World Cup team and its performance. In the bookshops there is a huge number of well-written books about science, history and almost any other subject as well as fiction. Advertisements in all media are slick, humorous, probably very effective, and have unquestionably benefited from some extraordinary brain power.

It all comes down to incentives. We react rationally to the incentives on offer. And there are few direct incentives for us to seek solutions to global problems. There are scientists, politicians and officials part of whose remit includes addressing these problems, but their financial rewards are in no way linked to their success in solving them. Rather than hope for a mass conversion to altruism, or despair at the improbability of a bright human future, we can do something to rejig the incentives. That’s when (in my view) Social Policy Bonds come in. Social Policy Bonds inextricably link rewards to outcomes – not inputs, outputs or activities. Under a bond regime, people would not get paid merely for turning up to work at a bureaucracy that includes the words ‘Environment’ or ‘Climate Change’ in its title. They would, in essence, be on performance-based contracts of the most flexible sort: if they fail to deliver, then the rewards will go to those who can deliver.

We need to agree on what we want as a society. For starters we’d probably opt for some climate stability target, and the absence of a nuclear conflict. Then rather than employ swarms of bureaucrats with the stated objective of achieving , these goals, we should issue Social Policy Bonds targeting them. Rewards would then be inextricably linked to achievement of a stable climate and nuclear peace, and we’d find a significant fraction of our species’ awesome collective skill, talent and energy channelled that way.

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