Thursday, April 9, 2009

Unintended Consequences

First, the Powell Center will be closed for a long weekend. But we will resume operations on Monday. For those of you who are going on spring break, you might want to check back here from time to time if you're going to be away from your school email. Now down to today's posts.

One of the Powell Center's Keystone Economic Principles says that all choices have consequences. When we do teacher training, or when we explain the principle to students, we frequently also discuss the idea of unintended consequences. There are some great examples of unintended consequences in this article from the History News Network website.

The author explains how individual events or choices can have effects that are far removed and are unforeseen. Almost always, these effects are not what were intended

But the real economic lesson lies in the fact that we often don't recognize or fail to consider what the consequences might be beyond the short-term. As individuals and as a society, we focus on the short-term. Too few of us (and I am as guilty as others) consider the incentive structure that a decision creates relative to existing incentives.

The following post, which deals with responding to incentives, has a link that illustrates that. When we seek to intentionally change the institutions that shape how we choose, we change the incentives for all the players. That change in incentives interacts with other incentives in place. And that leads to unintended consequences.

I look forward to your comments.

This post relates to the following Keystone Economic Principles:
1. We all make choices.
3. All choices have consequences.
5. Incentives produce “predictable” responses.

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