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Economists adjust theories supported by data and understanding of incentives. Having the right incentive

is key.

But the right incentives can be hard to figure out. Take for example public colleges

and universities. Many of them used to get state money for each student they enrolled.

That meant universities had financial incentives to focus on recruiting as many students as

possible, but not actually helping them succeed once they were in class.

So states have started changing the incentives. Now, more and more states reward schools for

the number of students that complete courses or earn degrees. And in some places this has

worked; it's helped schools increase their graduation rates by shifting money from marketing

budgets to programs to help students do better, but those incentives can also backfire if

they're poorly designed.

A university that gets money for graduates could push students through the program without

giving them a good education. It might want to only admit students who come in with super

high test scores, instead of considering other factors that might make them good candidates.

It might push students into less-rigorous majors.

But incentives can help solve problems without adding more resources. You just have to get

the incentives right. Many non-economists assume that the way to improve things like

healthcare is to spend more money.

Economists would point out that the US already spends almost twice as much per person as

other rich countries, and in many cases they get worse health outcomes. Economists would

also say that rather than spending more money, we need to make sure that insurers, doctors,

hospitals, and patients have incentives to produce the most effective care possible at

the lowest cost possible. The point is, if you mess up the incentives, the policy's not

gonna work.

When Vietnam was under French colonial rule, the regime issued a bounty on rats to exterminate

them, giving money to people for...