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In early 1998, day care centres around Haifa, in Israel, had a problem. It was a problem
common to many of us who have looked after children for a living: late parents.2 After a
long day being responsible for other people’s children, by 4pm the teachers were ready to go
home. And they weren’t being paid for staying any longer. But invariably some parents would
be late, and someone would have to stay behind and wait with the child. But one day some
social scientists turned up (or rather, sent their research assistants) and made a suggestion:
why not fine the parents for being late? It is a solution any economist would give.
Over the next few weeks things carried on as normal, as the researchers gathered data
before making any changes. Then, they adopted a policy where any parent who was more
than 10 minutes late would pay a $3 fine. But instead of reducing lateness, the number of late
pickups more than doubled. The incentive backfired.
As an economist, I’ve heard this example a lot. It’s often used to show economists that
assuming people’s behaviour can be manipulated with financial incentives is na¨ıve and narrow
minded. Indeed there is some truth to this. Just because originally there was no fine doesn’t
mean that there was no incentive to be on time. The social norm is to be on time, and late
parents probably felt guilty. Once the arrangement moved from the social to a financial realm,
parents realised they could ‘buy’ the right to be late. Indeed they weren’t just buying the right
to be late, but also the ability to not feel guilty about it. In fact, maybe the lesson of the day
care experiment is not that economists overstate their subject matter, but that non-economists
understate it. After all, the average monthly cost was about $380. A good economist would
suggest that the fine was set at a price that was too low! If the goal was to reduce lateness, raise
the fine. And even more importantly, discovering the point at which the fine has an effect will
help the day care centre to know just how valuable the parents consider their time to be. This
whole experiment might help them to discover which opening hours best suit their customers.
Clearly the parents are willing to pay the teachers to stay later. Far from demonstrating the
failure of markets, this example is like a cursory foray into their magic
ANTHONY J. EVANS - Personal Name
2nd Edition
978-1-118-86794-5
NONE
Markets for Managers
Makerting
English
2014
USA
1-273
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