INTRODUCTION TO
ECONOMICS
Lesson 14 /07
INCENTIVE
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