Economists' fundamental principle is "Incentives
Matter." This maxim means that people change their behavior to
either obtain perceived benefits or avoid/reduce perceived costs. If the
perceived benefit outweighs the perceived cost - the individual is more likely
to assume the cost. If the opposite is the case - the individual will seek ways
to avoid or reduce the cost.
Apply this to Government Policy - this means that individual
behavior changes anytime Government creates an incentive, or imposes a cost.
While this statement may seem obvious, even trite, it is surprising how
many people assume that individual behavior will not change in the face of a
new law or program.
It is folly to think that business will pay a newly imposed tax
or mandate without (a) raising prices it charges to consumers; or (b) reducing
costs in other areas (e.g. reduced pay or raises to employees).
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