Tuesday, January 13, 2009

People respond to incentives - the parent's edition

As Steven Landsburg put it "economics can be summarised by just four words: 'people respond to incentives'. All the rest is just commentary".

Expectant parents are people too and when faced with incentives they will respond too. You might think that economics and incentives have nothing to do with the natural process of birth, but how wrong you could be.

Two examples show that when faced with simple monetary incentives expectant parents will either accelerate or delay the birth of their new baby.

The first example comes from the US and is reported here.

Since the early 1990s the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of anyof these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.

The result:

about 5,000 babies, of the 70,000 or so who would otherwise be born during the first week in January, may have their arrival dates accelerated partly for tax reasons.

To see an example of parents delaying the birth of their child we move down under where it is reported that

On 11 May 2004, Peter Costello brought down the budget in which he urged Australian families to have “one for mum, one for dad, and one for the country”. And because Treasurers can put their money where their mouth is, he promised that every baby born on or after 1 July 2004 would receive a $3000 Baby Bonus.

The result:
the 1st July, 2004, had the most number of births in a single day over the entire 30 years of data we had (almost 11,000 days). The 2nd July was no slouch either, being the 7th highest day. This was a big effect.
People respond to incentives.

No comments:

Post a Comment