I’d like to expand on a simple endeavor: How can we entice people to give more blood? I may choose to donate blood because I enjoy that warm and fuzzy feeling—knowing that someone’s life may be prolonged by my donation. My colleagues notice my colorful bandages and praise my selfless philanthropy. The fuzzy feeling grows. These are moral and social incentives, respectively. However, in the current system, society doesn’t donate enough blood to fulfill the needs of the sickly. Warm fuzz may not be enough.
Why not pay donors for their blood? People who need blood would be willing to pay almost anything for it, so there seems to be potential to make a market out of it. However, blood procurement is probably not something to leave to the market alone. For safety reasons, regulations would have to be enforced like qualifications for donor sites, maximum quantity restrictions, disease control measures, etc. And the more cash that’s offered, the more incentive people have to try and cheat these regulations--as I will discuss.
The current amount of blood donated is based on those warm and fuzzy feelings. If we were to add in a monetary incentive, quantity would not rise from that point. This is because money can kill moral and social incentives. When money is introduced it allows one to easily quantify their costs versus the benefits of continuing the voluntary bleeding. And donating blood is no longer a noble endeavor; the stipend has turned it into a disdainful way to make some quick cash.
If our goal is to solely increase the quantity of blood donated, we simply need to pay a enough. However, our goals are never so exclusive.
“A thing worth having is a thing worth cheating for.” --W.C. Fields
Although I don’t particularly prescribe to the philosophy that people are naturally evil, I believe the wrong set of incentives can make it look that way. Since this monetary incentive allows risks to be quantified, increasing amounts of corruption will likely be observed. We do desperate things for money.
If the stipend is high enough, donors might flock to different sites and use fake ID's to give more than what is deemed safe. An overriding system would be necessary to try and prevent this corruption. Thus begins the bureaucracy and the costs associated with it. Speaking of costs, we cannot forget about the actual costs of the stipends paid out to donors. The more we paid for blood, the more we will have to pay for the regulating system. As you can see, these costs will pile up. The externalities are so great that they would inevitably outweigh the increased amount of blood.
Costs and corruption are enough to prevent the above proposed system from being efficient. In this case it is better to leave it up to the warm and fuzzy. That is why we currently don't get paid for our donations. It is clear why this does not work in terms of donating blood. What about other applications?
Recently, I observed warm and fuzzy turn into cold and hard in a bank call center. The goal was to increase performance by paying for it. Management found that representatives who made more calls per account generally had greater sales. In turn, a system was enacted to pay representatives to increase the number of calls they made per account. The representatives did just that.
We observed the number of calls per account increase from about 3 to 5. However, sales remained constant. And the bank now spent more to pay for this futile change in behavior. It turns out that representatives started calling phone numbers that they knew would not be answered. A typical account had home, work, and cell phone numbers. Even though the representative knew the cell phone had the greatest probability of contact, they would call the others first to inflate their cold, hard payout. Clearly, this incentive system failed.
When presented with a simple problem it may be easy to implement a cash incentive system that tries to tackle the source. However, the side-effects are often overlooked. The purpose of this inquiry is not to advocate the elimination of monetary incentive systems. Rather, to help understand the costs, externalities, and inefficient behavior it may produce. By exploring the motivating incentives, these behaviors can be predicted. I am only advocating that we attempt to predict them and adjust accordingly.
Why not pay donors for their blood? People who need blood would be willing to pay almost anything for it, so there seems to be potential to make a market out of it. However, blood procurement is probably not something to leave to the market alone. For safety reasons, regulations would have to be enforced like qualifications for donor sites, maximum quantity restrictions, disease control measures, etc. And the more cash that’s offered, the more incentive people have to try and cheat these regulations--as I will discuss.
The current amount of blood donated is based on those warm and fuzzy feelings. If we were to add in a monetary incentive, quantity would not rise from that point. This is because money can kill moral and social incentives. When money is introduced it allows one to easily quantify their costs versus the benefits of continuing the voluntary bleeding. And donating blood is no longer a noble endeavor; the stipend has turned it into a disdainful way to make some quick cash.
If our goal is to solely increase the quantity of blood donated, we simply need to pay a enough. However, our goals are never so exclusive.
“A thing worth having is a thing worth cheating for.” --W.C. Fields
Although I don’t particularly prescribe to the philosophy that people are naturally evil, I believe the wrong set of incentives can make it look that way. Since this monetary incentive allows risks to be quantified, increasing amounts of corruption will likely be observed. We do desperate things for money.
If the stipend is high enough, donors might flock to different sites and use fake ID's to give more than what is deemed safe. An overriding system would be necessary to try and prevent this corruption. Thus begins the bureaucracy and the costs associated with it. Speaking of costs, we cannot forget about the actual costs of the stipends paid out to donors. The more we paid for blood, the more we will have to pay for the regulating system. As you can see, these costs will pile up. The externalities are so great that they would inevitably outweigh the increased amount of blood.
Costs and corruption are enough to prevent the above proposed system from being efficient. In this case it is better to leave it up to the warm and fuzzy. That is why we currently don't get paid for our donations. It is clear why this does not work in terms of donating blood. What about other applications?
Recently, I observed warm and fuzzy turn into cold and hard in a bank call center. The goal was to increase performance by paying for it. Management found that representatives who made more calls per account generally had greater sales. In turn, a system was enacted to pay representatives to increase the number of calls they made per account. The representatives did just that.
We observed the number of calls per account increase from about 3 to 5. However, sales remained constant. And the bank now spent more to pay for this futile change in behavior. It turns out that representatives started calling phone numbers that they knew would not be answered. A typical account had home, work, and cell phone numbers. Even though the representative knew the cell phone had the greatest probability of contact, they would call the others first to inflate their cold, hard payout. Clearly, this incentive system failed.
When presented with a simple problem it may be easy to implement a cash incentive system that tries to tackle the source. However, the side-effects are often overlooked. The purpose of this inquiry is not to advocate the elimination of monetary incentive systems. Rather, to help understand the costs, externalities, and inefficient behavior it may produce. By exploring the motivating incentives, these behaviors can be predicted. I am only advocating that we attempt to predict them and adjust accordingly.
Wow, insightful. Economics is all about incentives!
ReplyDeleteI would think that offering a monetary incentive to donate blood would increase the number of donors doing it for the "warm and fuzzy" feeling and not just of those who want to make a quick buck. The incentive would be just that, an incentive to make them act upon that "feeling" of doing something that makes them feel good.
ReplyDeleteIf the purpose is to use blood donation as an example to examine incentive systems, the costs, externalities, and inefficient behaviors they may produce. How costly and inefficient is a constant blood shortage?
Andres, thanks for the insightful comments.
ReplyDeleteThe remarkable part about monetary incentives is that they can help people forget about the intrinsic reason(s) they choose to act by drawing attention to the cost associated with the action. It is for this reason that we loose the warm and fuzzy. For instance, giving blood plasma or sperm (where stipends are currently rewarded) have significantly less nobility and altruistic connotations than that of blood donation.
I think you bring up a great point about the potential benefit-cost analysis presented above. Apparently, the blood shortage isn't so costly and inefficient that reform is needed in the collection process. However, it is likely in the collectors' best interest to keep society thinking that way to further persevere the warm and fuzzy.
I wonder if sperm or plasma collection centers ever experience shortages. It'd be interesting to see if their system actually works. True, there'd be much less intrinsic motivation to "donate" but if it gets the job done, is it really all that bad? Do they the problem of people showing fake IDs or lying to qualify?
ReplyDeleteInteresting post, Niko!
I agree entirely. I believe at one point there was compensation for donating blood but drug addicts would donate too much for the cash, not to mention this crowd provided a large spread of the aids virus in its early day's.
ReplyDeleteI propose not to offer a cash incentive to change the type of people involved but to get more involvement by increasing the amount of warm and fuzzy's.
This could be something like for each donation of blood a donation can be made to another charity of the donors choice selected from approved charities. That way the person gets twice the benefit and other charities would encourage support for the mutual benefit.
While there is still a risk of corruption a church group or the United way is less likely of a crowd to use fakes ID's.