Optimization Process

Words Symbols

Alternate incentives

economics words symbols

Sometimes, it would be good for somebody to do a thing, but the benefits go mostly to random strangers: there's no way for the agent to capture the value they'd create. In these cases, the classic solution is for the government to reward people for doing the thing / punish people for not doing the thing. Some examples:

...hold on...

So... there's another solution, that doesn't involve the government directly incentivizing Doing The Good Thing, but instead changing other people's incentives to make it easier to capture the value produced by Doing The Good Thing. And, sometimes, this other approach might be the right tool for the job: intellectual property law is definitely imperfect, but consider the alternatives of "only philanthropists create art" or "artists need to worry about losing funding because a bureaucrat thinks their boss thinks their boss thinks their boss thinks Trump wouldn't like it."

Somehow I'd never explicitly noticed the existence of this other approach.