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A perverse incentive is an unintended and negative consequence of an action, often working against the original intentions. It can be found in government regulation, corporate actions, parenting, and education. Different types of perverse incentives can have varying effects, from directly related to more abstract negative consequences. In business, it can lead to negative consequences for the company or society’s morals.
A perverse incentive is an incentive created by a certain unintended and usually negative event or change. Perverse incentive is something the creators of a plan didn’t anticipate, and commonly, it’s something that works against their intentions. This idea is used in business, as well as journalism and other forms of communication in English.
English speakers may use the phrase “perverse incentive” to refer to the results of different types of government regulation or other government actions. People can also identify perverse incentives from corporate actions or the actions of other powerful parties. For example, imposing different types of tariffs on consumers can have perverse incentives. The term can also be used when discussing parenting, where some parental restrictions or other actions may have unintended effects on children.
Other specific situations also illustrate how English speakers can identify perverse incentives. Rules in prisons are one example, where well-intentioned changes in protocol can have unforeseen effects. People say that the creation of welfare programs and energy regulation efforts also have these kinds of consequences.
It is important to note that different perverse incentives work in different ways. Sometimes, English speakers use the term to refer to something that is directly related to an action. For example, if a certain cost structure imposed by a company forces customers to buy less rather than more, this is a direct perverse incentive. In other cases, the effect is less directly related. One example is in education, where some refer to efforts to teach students according to standardized testing objectives as having perverse incentives. Here, while “teaching the test” can actually increase test scores, it can have other more abstract negative effects on students in terms of their creative problem solving skills.
In business, the use of the term can refer to negative consequences for the company itself or other negative effects on a general community. Some link perverse incentives to the idea of ”moral hazard,” where an unexpected incentive can lead to a threat to a society’s morals. Companies use both of these terms to try to avoid a wide variety of negatives that could end up hurting their bottom line or giving them bad publicity due to the effects on a community or group of consumers.
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