A proof of the Law of Incentives and Unintended Consequences, this casual exploration shows how the most basic monetary incentive can alter even the biologically fundamental cycle of birth. In what may have been regarded as a failure of foresight, on May 11th the Australian government introduced a new policy of consolidating different maternal payments into one lump sum of $3000, to begin on July 1st, 2011. Now, this policy was certainly well-intentioned. But as any good economist will quickly point out to you, intentions are no indication of results. Knowing this, the economist who wrote this piece immediately did two things: first, his wife pregnant, he double-checked his baby's due date, and second, he formulated a hypothesis. In hindsight, it seems rather obvious. The hypothesis was that no babies would be born on June 31st. Now, this is an exaggeration of course, but the general idea was that, relatively, many more babies would be born on July 1st, and many less in the days close before it. And he was correct! July 1st and the few days after saw a spike in birth rates. The disturbing element was that the natural birth rate remained constant, while the number of C-sections and induced births jumped. People weren't forging birth certificates, they were actually altering the delivery date. So he was right!
Before I begin my analysis, I have one question. Wouldn't the cost of a C-section, induced labor, or other artificial birth cost more than the $3000 payment? At least for a C-section, this would seem to be the case. Maybe it is because insurance covers the birth.
Moving on, I think the lesson here is simple. People respond to incentives. When it comes to incentives, almost no behavior is sacred. If money can convince people to artificially change the birth date of their baby, there is no doubt it has a strong influence over the actions in a society. Furthermore, this brief article illustrates the "Law of Unintended Consequences". The law was well-intentioned, did benefit families, and was well-thought out in almost every aspect. But because of one logical mistake, there was an unintended and perverse incentive to manipulate birth dates. This is the "Law of Unintended Consequences".
Main Ideas:
1. Incentives, incentives, incentives
2. Even the most well-intentioned laws can have unintended consequences.
3. No behavior is sacred.
Before I begin my analysis, I have one question. Wouldn't the cost of a C-section, induced labor, or other artificial birth cost more than the $3000 payment? At least for a C-section, this would seem to be the case. Maybe it is because insurance covers the birth.
Moving on, I think the lesson here is simple. People respond to incentives. When it comes to incentives, almost no behavior is sacred. If money can convince people to artificially change the birth date of their baby, there is no doubt it has a strong influence over the actions in a society. Furthermore, this brief article illustrates the "Law of Unintended Consequences". The law was well-intentioned, did benefit families, and was well-thought out in almost every aspect. But because of one logical mistake, there was an unintended and perverse incentive to manipulate birth dates. This is the "Law of Unintended Consequences".
Main Ideas:
1. Incentives, incentives, incentives
2. Even the most well-intentioned laws can have unintended consequences.
3. No behavior is sacred.
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