INTRODUCTION TO ECONOMICS                      Lesson 14 /07



An understanding of the role of incentive is fundamental to the study of economics.  An incentive is any factor, which motivates or induces a person to act in a particular manner, especially to choose one course of action in preference to another.  By their nature, human beings act and are continuously required to do so.  In the process of acting they are required to make choices. 

The proper role of the economist, it is sometimes said, is to consider the unintended and otherwise unforseen consequences of human action.  As a study, economics is concerned with the incentive structures that exist within any particular society; that is to say, incentives that are, or are likely to be, of general application to members of that society.

There are various ways of classifying incentive.  For purpose of economic study a variety of incentives, which motivate or induce any particular individual to act, can be seen as purely personal.  Emotions such as love or hate personal tastes or desires can motivate or induce but by their nature are not of general application and therefore do not constitute a social classification.

A widely accepted classification of incentive is threefold, namely personally remunerative, cultural or moral, and coercive.  A personally remunerative incentive is one that provides a material benefit, such as a financial reward, for acting in a certain way.  A cultural or moral incentive is one that provides status or self-esteem.  Conversely a coercive incentive is one where failure to act in a particular way will result in the infliction of pain or punishment  


                            David Sharp                           

                              August 2007  




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