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November 16, 2006

Incentives Matter!

Via the Select Society this from the Brussels Journal.

As reported recently by the German press, criminals are manipulating the German bottle deposit system on a massive scale in order to make money. They are manufacturing bottles, falsifying the product codes and then returning the self-made bottles to supermarkets throughout Germany.

Obviously, there is a flaw in the entire system – even the word “deposit” is misleading. Usually, a deposit is paid for something of value, i.e. an item that the owner would like to have returned. However, the item in question is a non-refundable bottle that cannot be reused. The incentive for criminals stems from the very low production costs – much less than one half of the deposit amount.

An entirely apt follow on from the previous post I think. Yes, really, as Uncle Milt has been telling us for more than half of the past century, incentives matter and if you think markets screw up just wait until you see what governments can do to mess things up.

One other point from Professor Friedman. It isn't intentions that matter but outcomes. Clearly, this bottle recycling scheme does not reduce pollution nor reduce the consumption of resources. So who will defend it on anything other than the grounds that, well, our intentions are good?

November 16, 2006 in Economics | Permalink

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Comments

Rather reminiscent of an episode in one of Terry Pratchett's Diskworld books where the city tries -- briefly -- to curb the plague of rats by offering a bounty for each rat caught. Suddenly rat-farming takes off in a big way.

Tim adds: So you too are reading the kiddies books? Maurice and the Amazing Dancing Rats or something wasn't it?

Posted by: Not Saussure | Nov 16, 2006 8:33:49 PM

"criminals are manipulating the German bottle deposit system on a massive scale in" .. Ho ho ho ho, ha ha ha ha ha.

More worringly, I cannot help but think somewhere at the very heart of "environmentalism" is a fundamental assault on the enlightenment.

I suppose that's why I come and blog here, notwithstanding some weird Europhobic attitudes that prevail.

Posted by: johnnybonk | Nov 18, 2006 3:22:51 AM