Monday, February 17, 2014

Incentives matter

Where to start… 

Incentives. Fun fact for the day, did you know that approximately 90+ % of all donations given (By individuals, not businesses) are given in complete ignorance to the receivers financial statements? As referenced from a 2007 Not For Profit(NFP) accounting text. These financial statements by law are required to show where money is coming from and where it is going, (statement of Cash Flows) this can be found with the easy to read index published at the start of the document. Given these PDS range from 100-400 pages easily, the index allows you to jump to the important information easily. When provided with a random name of a NFP company I can find this information online in less than 10 minutes, that includes scrolling time through the 400 pages of pdf documents. 

The word “lazy” comes to mind, but it is really just marginal cost vs. marginal benefit, with a side order of heart strings. People simply do not want to take the time to research where their money is going, so if the individual does not do their research they have no right to complain. It is no one’s fault but their own. 

With regards to the health care issue, <stands up and screams at sky> “Will people please stop laying these problems at the feet of economics as though it was the economies fault!” yes, market failure can happen, most of these circumstances are brought about by the government thought.  But one should not think of the government as a person, it is composed of people who are put in place by individuals. (In theory, practice may differ) 

In the very last paragraph the author mentions there is no incentive to fix the problem. This is because the individual does not have enough incentive to do any research or take any action, MC vs. MB, again. As a result the individual, takes no action, this is where government intervention could (in theory) help correct a, hesitant to say “Market Failure” –do to this failure being brought on by those in power.

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