Wednesday 15 January 2020 6:56 am

A tip for Dominic Cummings: Don’t hire anyone who fails to grasp the power of incentives

Paul Ormerod is an economist at Volterra Partners LLP, a Visiting Professor in the Department of Computer Science at UCL, and author of Against the Grain: Insights of an Economic Contrarian, published by the IEA in conjunction with City A.M.

The job advert issued by Dominic Cummings for people to work in government has attracted a wide range of comments. One particular focus has been on the sorts of skills he is looking for.

Computer science, forecasting, artificial intelligence, causality theory — all these topics excite his interest. Cummings advocates a small selection of scientific papers with which applicants should be familiar. He believes that humanities graduates are unlikely to be aware of them.

The papers are indeed quite challenging mathematically. Even the smartest arts graduate might struggle to cope with their content simply because of the language — maths — in which they are written. 

The implication is that those with expertise in the humanities need not apply. Indeed, economics is conspicuous by its absence from the now notorious reading list.

I can empathise with his focus on the hard sciences. But economics does have one very powerful, general insight into behaviour that Cummings should heed. In fact, everyone — whether working in the civil service, think tanks or university social science departments — should be familiar with it.

It is, quite simply, that agents respond to incentives. When the set of incentives faced by an individual, a company, or a government changes, behaviour changes too. Different decisions are made as a result.

Two snippets of recent news, chosen almost at random, can illustrate the power of the concept.

Beggars have started to travel from Glasgow to Carlisle to ply their trade. In Scotland, the penalty for aggressive begging is up to a year in jail and a £5,000 fine. In England, it is only a £1,000 fine. These facts are sufficient to explain why Carlisle has become more attractive.

On a note that will be more relevant to most people, more than a million people a month now fail to turn up for GP appointments. From June to November last year, a record 7.8m patients did not attend.

This bad behaviour imposes extra costs on the NHS and makes it more difficult for people who really need to see a GP to get appointments.

A simple solution is to charge for visits to the GP surgery. It would not eliminate the problem, but it would make a big difference.  Once having paid, people would be much more likely to turn up.

Any proposal to introduce charges in the NHS causes the left to froth at the mouth. The standard argument is that charges would deter poor people from accessing healthcare.

It does not seem to do so in countries such as Ireland and Sweden. Both charge people to see their doctors. The impact is mitigated in the former by an annual cap on charges, and in the latter low-income people can visit for free. Other EU countries have similar schemes — in France, the principle of health services is pay upfront, get reimbursed later.

It is not necessary to believe that people act in a completely rational way all the time. They obviously don’t. But incentives work. Empirical examples of the principle can be found every day, in every situation.

A simple, sensibly designed set of incentives is worth a tonne of regulation. A clear understanding of this principle should be the key thing Cummings considers when hiring a new set of government “weirdos” to shake up the civil service.

Main image credit: Getty

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