Incentives are ubiquitous. An online retailer gives customers an incentive to buy more items by offering free shipping. A local government gives an incentive to pay taxes sooner than later by reducing the bill. Ruth W. Grant begins her book, Strings Attached: Untangling the Ethics of Incentives, with several examples. Some relate to business: “Companies pay schools to install soda machines or televisions in their lunchrooms.” Some relate to government: “A state legislator suggests paying poor women $1,000 to have their tubes tied.” What they have in common is that someone is trying to induce someone else to take a course of action. One of the author’s goals “is to make visible the problematic ethical issues involved in the use of incentives.” Another “is to find ways to distinguish legitimate from illegitimate incentives.”

Incentives in word and deed / Readers will learn that Adam Smith never used the word “incentive.” Grant tells the story: “starting in about 1600, the word ‘incentive’ meant ‘inciting or arousing to feeling or action, provocative, exciting.’ ” That, of course, is not exactly the contemporary meaning.

By telling the history, she aims to dispel “contemporary misconceptions that incentives are identical to market mechanisms; that they are, therefore, alternatives to social and political control; and that they have always been largely uncontroversial.” I see no misunderstanding that incentives are “identical to market mechanisms.” Parents pay their children to do chores. Politicians prod us with taxes and regulations. The idea that incentives are “alternatives to social and political control” sounds reasonable, even if the wording does not. People who study or deploy incentives might view them as a means of social and political order, but not necessarily “control.”

I was ignorant of the history of incentives and therefore any past controversy. Thanks to the author I now know the historical controversy. But contrary to her view, I see plenty of current controversy. In fact, her whole book is chock full of controversial incentives.

After disappearing for decades, the word “incentive” resurfaced during the Progressive era in the subjects of “scientific management,” “socialist economics,” and “behavioral psychology.” Frederick Taylor, a founder of scientific management, implemented incentives in the forms of “piece-rate, bonus, or premium wage systems.” Scholars who debated the feasibility of socialism equated incentives to “motivation.” Behavioral psychologists devised incentives to micromanage behavior.

Grant views scientific management, socialism, and behavioral psychology as social engineering. She declares that “incentive systems are one of the tools in the social engineer’s toolbox.” This point convinces readers, especially those who resist social engineering, that incentives were controversial during the Progressive era. However, her point that there is “danger” in today’s concept of incentives is less convincing.

What is the danger? If we associate “incentive” with “motivation,” Grant claims, people will think “that motivation works in the same manner described by behavioral psychologists: an external stimulus produces a response, as the smell of cheese stimulates a mouse to navigate a maze.” People may be inclined to think this way. If so, the author reasons, “The danger is that all motivation will come to be conceived this way.” That reasoning is perhaps unwarranted. Just because people recognize external sources of motivation, such as wages for labor, does not mean they can’t see internal sources, such as the desire to do a good job. Maybe both hunger and the scent of cheese placed by an experimenter cause a mouse to search for food.

The author correctly points out that people think of incentives as “both market forces and behavior-inducing social policies.” By thinking that way, she claims, “the distinction is lost between cooperative exchanges and bargains involving the exercise of power.” This concern is peculiar at this place in the book, because later she equates exchange to bargaining and classifies both as “exercises of power.” Nevertheless, she is onto something. We should understand the difference between, say, Walmart lowering its prices to attract customers and Congress inducing us with vouchers to sell our used cars and buy new, fuel-efficient ones. “The danger,” according to her, “is that all sorts of bargains will come to seem equally benign.”

Grant’s ‘incentives’ / Grant adopts “a narrower definition of incentives” in order to evaluate which are ethical and which are not. She thinks of them as a particular kind of offer:

  • an extrinsic benefit or a bonus that is neither the natural nor automatic consequence of an action nor a deserved reward or compensation,
  • a discrete prompt expected to elicit a particular response, and
  • an offer intentionally designed to alter the status quo by motivating a person to choose differently than he or she would be likely to choose in its absence.

The author’s definition thus clashes with everyday usage. The first criterion rules out thinking of incentives as intrinsic motivation, such as the obligation parents feel to raise good children. It also rules out market prices such as wages, even though people think of wages as “compensation” for work. It is unclear whether any given offer must satisfy each of those points, or any one, in order for Grant to consider it an incentive. She admits that hers is not “the only correct” definition of incentives, and that she is not trying to impose it on everyday conversations. The problem is that such a restrictive meaning might be unnecessary to achieve her goal of differentiating between ethical and unethical incentives.

The author views coercion, bargaining (including incentives), and persuasion each as “a form of power.” Although it is easy to think of persuasion as harmless, coercion as drastic, and bargaining somewhere in between, she argues that those differences are superficial. Coercion may be legitimate, as in a homeowner driving out an intruder at the point of a gun. Persuasion may be illegitimate, as in a young man charming a rich widow out of her money. With this understanding, consider Grant’s three necessary conditions for any exercise of power to be ethical: “legitimate purpose,” “voluntary response,” and “effect on character.” Her analysis of “plea bargaining, payment to recruit human subjects for medical research, conditions attached to loans by the International Monetary Fund, and incentives used to motivate children to learn” comprise the largest chapter of the book.

In the case of plea bargaining, Grant grapples with the criterion of purpose. The courts, according to her, are supposed to find the “truth” and serve “justice.” Plea bargaining is unethical because it subverts both goals. When a defendant charged with murder in the first degree, for example, pleads guilty to murder in the second degree and waives his right to a trial, the evidence is not weighed to determine guilt. In other words, we do not learn the truth. As for justice, the author states, “Either the defendant is guilty but gets off easy by copping a plea, or the defendant is innocent but pleads guilty to avoid the risk of greater punishment.” When a truly guilty defendant pleads guilty to a lesser charge, justice is not served to society. When a truly innocent defendant pleads guilty, justice is not served to the defendant. What if a case goes to trial and a truly guilty defendant goes free or a truly innocent defendant gets convicted? Those possibilities may be why Grant makes the qualification: “A plea bargain … is therefore, in principle, an inappropriate means toward the end of meting out justice.”

Assuming that a medical research project has a good purpose, the author considers whether incentives to recruit subjects meet the criterion of voluntariness. Critics argue that “incentives can be too large, constituting ‘irresistible’ or ‘coercive’ offers” that therefore do not satisfy the criterion of voluntariness. Proponents of offering monetary incentives to recruit medical research subjects argue that “undue inducements” do not even exist. The critics may be on weak ground because, by their reasoning, offering $1 million to a poor person in return for being a research subject might be unethical while making the same offer to a millionaire might not. Debating voluntariness is good mental exercise, but inconclusive in this case. So the author turns to the criterion of character.

Grant tells us that “the ethically suspect incentive is one used to induce someone to do something to which they are strongly averse, particularly if the aversion is a principled one or a matter of moral scruple.” Such an incentive degrades the recipient’s character, as offering a bribe encourages a person to violate his or her responsibility. In one actual case, researchers approached the parents of retarded children. If the parents allowed their children to be subjects in a study “requiring the children to be infected with hepatitis,” the researchers would furnish the children with care in a premium facility. Because the offer aimed to override the parents’ natural inclination to protect their children from harm, Grant reasons, it was unethical. After examining a wide range of ethical issues related to medical research incentives, she recognizes this tradeoff: “The ethical responsibility to improve medical care must be balanced against the ethical responsibility to treat research subjects as autonomous individuals deserving of respect.”

Today’s IMF makes loans to encourage economic development. “IMF loan ‘conditionality,’ ” the author explains, “is the practice of requiring governments to adopt certain policies and practices as a condition of receiving a loan.” Those policies include “reducing budget deficits, raising taxes, raising interest rates, privatization, and trade liberalization.” Grant discusses whether loan conditions satisfy her three criteria of legitimacy at length, but to no clear resolution. Thus she turns to her additional criterion and raises the question: “Does the incentive work?” Her summary of the empirical evidence is this: “Twenty years of studies [of the effects of IMF requirements] show little or no impact on growth, while the most recent studies show negative impacts on growth.” If efficacy is a condition for an incentive to be ethical, IMF loan conditions are not. Yet I wonder how ineffectiveness makes an incentive unethical. Good intentions do not necessarily produce good results, but do bad results imply unethical incentives?

Grant equips the reader with interesting criteria to ponder the legitimacy of incentives and engages the reader into applying those criteria.

The relation between incentive and outcome arises in the case of paying students to achieve educational goals. According to Grant, the key criterion here is the effect on character. She sets a high standard: “the concern with character involves encouraging children not only to do the right things but also to do them for the right reasons.” The problem is that paying students to learn will “crowd out” the intrinsic desire to learn and adversely affect character. Research shows, for example, that students who learn for nonintellectual benefits tend to cheat. Cheating is bad form. However, in my view, it is the cheating that is unethical, not the monetary incentive. Grant is not categorically against monetary incentives in education; if a student has no intrinsic motivation, then there is none to crowd out, and paying the student might kindle an interest in learning. But this reasoning seems too convenient, given the author’s earlier arguments. Is the author suggesting that achieving the desired outcome legitimizes a monetary incentive to learn, even though it is not one of the “right reasons”?

Conclusion / Grant’s analysis enlightens and frustrates. It enlightens because she equips the reader with interesting criteria to ponder the legitimacy of incentives and engages the reader into applying those criteria. Her analysis frustrates because, here and there, she uncritically embraces claims that seem muddled or questionable. Take this line: “The evidence suggests that when ethical motives and self-interested motives are both present, they do not act independently or reinforce each other.” Does the author assume that “ethical motives and self-interested motives” are mutually exclusive? And does she believe that the “evidence” she cites overturns Adam Smith’s observation on the consistency between self-interest and the common good?

Grant will side with neither libertarians who prefer the market nor progressives who want government intervention. She prefers “to distinguish legitimate from illegitimate incentives whether we find them in public or private arenas.” She succeeds in this respect by putting forth the necessary conditions for an incentive to be ethical, along with several supplemental ethical questions. Progressives have something to learn from her, such as how vote trading may produce legislation contrary to the general welfare. Libertarians have something to learn, too, such as viewing voluntariness as not just requiring “choice” but also “autonomy” on the part of the chooser.

Grant asserts that both progressives and libertarians assume that human beings compute the advantages and disadvantages of every decision they make. While that may be the case, both groups would probably disagree with her subsequent assertion that they both “will tend to find incentives generally benign.” Reading Strings Attached will nevertheless enhance the ongoing debate between progressives and libertarians.