A recent article in The Guardian looks at the history and failures of various cash incentive schemes, in light of a program that will pay British doctors to diagnose dementia patients.
Though classic economics, and common sense, suggest that higher incentives lead to better performance, there are a number of historical and experimental examples that document the opposite effect. A "perverse incentive" may undermine its intended goal, as in the case where parents of kindergarteners became increasingly tardy after a cash fine is imposed for late afterschool pick-ups.
Sam Bowles, an SFI Professor, explains that incentives “go wrong when they offend or diminish our ethical sensibilities.” Bowles refers to research from the business sector showing that incentives backfire when they signal mistrust between employers and employees.
Read the article in The Guardian (October 22, 2014)
The citation is based on a March 2009 article by Bowles in the Harvard Business Review