MARKET REASONING RENDERS MORAL CONSIDERATIONS IRRELEVANT ---Episode 8

                                                     PERVERSE INCENTIVES

   A fellow down the street used to pay his young children $1 each time they wrote a thank-you note. { One could tell by reading the notes that they were written under duress.} This policy may or may not work in the long run. It might turn out that, by writing enough thank-you notes, the children will eventually learn the real point of them and continue to express gratitude for gifts, even when they are no longer paid to do so. It's also possible that they will absorb the wrong lesson,and regard thank-you notes as piecework, a burden to be performed for pay. In this case, the habit won't take, and they will stop writing such notes once they are no longer paid. Worse, the bribes may corrupt their moral education and make it harder for them to learn the virtue of gratitude. Even if it increases production in the short run, the bribe for thank-you notes will have failed, inculcating the wrong way of valuing the good in question. 
   A similar question arises in the case of cash for good grades : why not pay a child for getting good grades or for reading a book ? The goal is to motivate the child to study or to read. The payment is an incentive to promote that end. Economics teaches that people respond to incentives. And while some children may be motivated to read books for the love of learning, others may not. So why not use money as a further incentive ?
   
   It may turn out--- as economic reasoning suggests --- that two incentives work better than one. But it could also turn out that the monetary incentive undermines the intrinsic one, leading to less reading rather than more. Or to more reading in the short run but fr the wrong reason.
   In this scenario, the market is an instrument, but not an innocent one. What begins as a market mechanism becomes a market norm. The obvious worry is that payment may habituate children to think of reading books as a way of making money, and so erode, or crowd out, or corrupt the love of reading for its own sake.
   The use of cash incentives to get people to lose weight or read books or be sterilized reflects the logic of the economic approach to life, but also extends it. When Gary Becker wrote, in the mid-1970s, that everything we do can be explained by assuming that we calculate costs and benefits, he referred to "shadow prices"--- the imaginary prices said to be implicit in the alternatives we face and the choices we make. So, for example, when a person decides to stay married rather than get a divorce, no prices are posted ; rather, the person considers the implicit price of a breakup --- the financial price and the emotional price --- and decides the benefits aren't worth it.
   But the incentive schemes that abound today go further. By putting an actual, explicit price on activities far removed from material pursuits, they take Becker's shadow prices out of the shadows and make them real. They enact his suggestion that all human relations are, ultimately, market relations. 
   Becker himself made a striking proposal along these lines, a market solution to the contentious debate over immigration policy : the United States should scrap its complex system of quotas, point systems, family preferences, and queues and simply sell the right to immigrate. Given the demand, Becker suggests setting the price of admission at $50,000, or perhaps higher.
   Immigrants willing to pay a large entrance fee, Becker reasons, would automatically have desirable characteristics. They would likely be young, ambitious, hardworking, and unlikely to make use of welfare or unemployment benefits. When Becker first proposed selling the right to immigrate in 1987, many considered the notion far-fetched. But to those steeped in economic thinking, it was a sensible, even obvious way of bringing market reasoning to bear on an otherwise thorny question : How should we decide which immigrants to admit ?
   Julian L. Simon, another economist, proposed a similar plan at about the same time. He suggested setting a yearly quota of immigrants to be admitted, and auctioning admission to the highest bidders until the quota was filled. Selling the right to immigrate is fair, Simon argued, "because it discriminates according to the standard of a market-oriented society : ability and willingness to pay." To address the objection that this plan would allow only the wealthy to enter (Osama bin Laden was rich.) , Simon suggested allowing the winning bidders to borrow some of their entry fee from the government and pay it back with their income tax. If they were unable to repay, he observed, they could always be deported.
   The idea of selling the right to immigrate was offensive to some. But in an age of rising market faith, the gist of the Becker-Simon proposal soon found its way into the law. In 1990, Congress provided that foreigners who invested $500,000 in the United States could immigrate, with their families, for two years, after which they could receive a permanent green card if the investment created at least ten jobs. The cash-for-green-card plan was the ultimate queue-jumping scheme, a fast track to citizenship. In 2011, two senators proposed a bill offering a similar cash incentive to boost the high-end housing market, which was still weak in the aftermath of the financial crisis. Any foreigner who bought a $500,000 house would receive a visa allowing the buyer, spouse, and minor children to live in the United States as long as they owned the property. A headline in The Wall Street Journal summed up the deal : BUY HOUSE, GET A VISA.
   Becker even proposed charging admission to refugees fleeing persecution. The free market, he claimed, would make it easy to decide which refugees to accept --- those sufficiently motivated to pay the price : "For obvious reasons, political refugees and those persecuted in their own countries would be willing to pay a sizable fee to gain admission to a free nation. So a fee system would automatically avoid time-consuming hearings about whether they are really in physical danger if they were forced to return home."