Question

One of the biggest takeaways from studying economics is that Incentives Matter. This week's board is about incentives. Imagine that you are the owner of a day-care center and that parents consistently pick their children up late. Your clearly stated policy is that children are supposed to be picked up by 5:30 pm. This makes pick-up time uncomfortable for all involved. A couple of economists who heard of this dilemma suggested a simple solution: penalize the tardy parents with a fine for late pickups. They then decided to test this solution in a study of ten day-care centers in Haifa, Israel. For four weeks they tracked the number of late pick-ups and then in the fifth week, a $3 fine per child per incident of lateness was enacted. After the fine was enacted, the number of late pickups promptly went up. What is the incentive in this example? Do you think this means that incentives don't matter? Are there incentives other than economic incentives? If you were the owner of the day-care center what would you do to address the problem? Answer these four questions with a clear structured thread and add any additional comments to a new thread. Be sure to include your name or initials with the subject of your new thread. This is a post-first discussion. You'll need to post a new thread before you can review other threads.   Identify and respond to at least two threads that you think clearly answered the questions. Indicate what points you believe were clearly addressed.

Answer 1

The incentive in this example is to not get penalised for $3 for coming late. However, this resulted in number of late pickups going up. This DOES NOT mean that incentives don't matter. The incentive is not implemented properly in this case. However, if the incentive would have been along the lines of "You get $3 if you pick your child up early/on time" then this incentive would've definitely worked.

Yes there are incentives other than economic ones like payment in kind or payment of stock. For example, a company may provide more 'days for leave' for an employee who consistently performs well.

If I were the owner of the day-care center, I would first raise the total fee for the daycare per child(say increase by $3) and then give the parents the incentive to reduce the cost(say $3) if they came on time.