1. Rational Choice & The Public Good Self-interested behavior can create collective problems (pollution, etc.) How to stop such behaviors: Incentives, disincentives, constraints The belief that policies should mimic the market whenever possible –Create incentives or disincentives, not prohibitions

2. Inducements The Proverbial Carrot and Stick: 1. An incentive makes it easier or more rewarding to engage in some behavior (tax credits, federal funds to states) 2. Deterrence makes it harder or more costly for certain actions: (tax penalties, sanctions) Note that reward contains an implicit penalty of withdrawal, and every penalty contains an implicit reward of cessation.

3. Stone: Complexity of Inducements Discouraging bad behavior and encouraging good behavior is more complicated than what the economic model suggests Implementation of inducements is difficult

4. Inducement Theory Inducements are a response to a problem. A problem exists when there is a divergence between private interests & public interests. Thee parts to the Inducement System: 1. Giver 2. Receiver/Target 3. Inducement itself All 3 need to work together for the desired change under the premise that people are rational by nature and will make the right decisions based on a calculated thought process.

5. Assumptions (utilitarian model): 1.People have control over their own behavior and are adaptable 2. Givers/receivers are rational, unitary actors 3. Receiver have an orientation toward the future (how soon or far away will the inducement occur?) 4. Based on purposeful notions of cause (when the cause of a problem is understood as intentional)

6. Problems with Inducements Using inducements doesn’t require us to understand the causes of a problem or why people do what they do. We are merely trying to fix/change behavior. Politically, this is easier than finding out the real problem and fixing it. Negative inducements (fines, tariffs, embargoes) can build resentment, forcing giver to use more threats/penalties in the future Positive inducements: if they work, both the giver and receiver benefit. Becomes an expectation. Difficult to get rid of, even when problem is alleviated

7. Inducements in the Polis In the polis, inducements are usually designed by one set of people (policy analysts, legislators, and regulation writers), applied by another (executive branch bureaucrats), and received by yet a third (individuals, firms, and organizations). There is never a direct correspondence between the inducement as proposed by the designer and as applied by the giver.

8. Effectiveness of Inducements Inducements may hurt the very thing one is trying to protect,.i.e. Federal government withdrawing funds from states that don’t provide services to their citizens (Medicaid, federal highway subsidies, public housing), thus depriving the very people they are trying to help.)

9. Effectiveness of Inducements The most important reason for slippage between the design of inducements and the target’s response is that people are strategic as well as adaptive. They will try to reap a reward or avoid a penalty without changing behavior.

10. Implementation of Inducements Who is eligible? When is an incentive used and when is a disincentive? Requires Rules

11. Rules Mandate Behavior –Requires Legitimacy –Context and Interpretation –Classification of violations Acceptable (good) rules require a balance between precision and flexibility –Like cases are treated alike –But special circumstances are taken into account

12. The Myth of Neutral Rules No system of inducements is self- executing, automatic, or apolitical Rules require enforcement Choices, Discretion