goonix

Obvious perverse incentive of the week award goes to…

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As rightly pointed out over at Kiwiblog, when you make something free you distort incentives around use of that good or service.

The previous Government introduced a Supergold card, offering concessions and discounts on various goods and services. In all their wisdom, they offer free off-peak travel on certain public transport. One such service was the Fullers Ferry to Waiheke Island.

It has now been reported that pensioners flocking to Waiheke Island have delivered more than $750,000 in Government subsidies to Auckland ferry operator Fullers in the first five months of free travel, with an average of 200 pensioners per day taking in the journey.

Who could possibly have foreseen that response?

8 replies
  3. Keith Ng
    Keith Ng says:

    Does it really count as perverse? The objective wasn’t to get pensioners to productive activities, it was about improving their quality of life by making it easy for them to get out more. Doesn’t a boatful of grannies going on a sunny boat ride to Waiheke give you the warm fuzzies? Just a little?

  4. rauparaha
    rauparaha says:

    I agree with Keith. I dont’ think it matters that Fullers got piles of cash: the important thing is that the pensioners are happier. What exactly is the problem here? Do you object to a single company gettnig such a large slice of the benefits of the subsidy?

  6. rauparaha
    rauparaha says:

    I think you’re making a value judgment there. The government clearly thinks that the benefit to the pensioners outweighs any deadweight loss from the subsidy, so I guess the problem is really conflicting value judgments rather than inefficiency 😉

  7. Keith Ng
    Keith Ng says:

    Re: overconsumption

    … of sunshine and fresh air? You big meanie with your diminishing marginal utility.

  8. Matt Nolan
    Matt Nolan says:

    I suspect Goonix is saying that the pensioners willingness to pay represents the social value of the activity – after all there is always an opportunity cost from taking pensioners to Waiheke Island.

    As a result Goonix is effectively appealing to the second welfare theorem and saying it would be more efficient to give pensioners money directly in order to move us to the equilibrium we as a society would prefer, instead of directly messing around with relative price signals …

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