Economics and Incentives

I find it very unlikely that whether or not economists adopt a professional code of ethics is a big deal in the scheme of things, but Lant Pritchett’s furious objections to the idea are entertaining:

[O]nce we as economists abandon the idea (even if it is only a useful fiction) that people’s ideas, arguments, and evidence should be evaluated on the premise they are sincere claims by sincere members of the community of discourse (at least until proven otherwise) in favour of a notion that we must first examine each person’s “bias” we are on a slippery slope into an ugly mud puddle. Why single out the “financial services” industry? I write at times on education economics and I happen to know that most people writing in that area get six figure incomes from the “education services” industry. Does that bias everything I and they write? And why stop at income; what about assets? I also happen to know that many economists have a large fraction of their wealth in a long position in the “housing services” industry. Does that make everything they write about housing suspect? And why stop at income or assets; those are hardly the only personal interests that could create a bias. Suppose my child had a pre-existing condition that would make it difficult for him to get insurance without a mandate for universal coverage. That would bias my views in the health care debates, so should I therefore disclose that so everyone could filter it into their assessment of any ideas, arguments or evidence I might present? And of course, identity claims are powerful sources of motivation and “bias”. Should either men or women who write about gender and economics disclose their sex so that we can dismiss the research produced by either gender based on bias?

It’s kind of amazing how if I were to say “I think people respond to incentives” that would be banal (especially amongst a group of economists) but if you accuse a particular person of being subject to this mechanism, suddenly you’re history’s greatest monster.

It’d be crazy to imagine economists sitting around in their offices saying to themselves “I’m going to write a paper favorable to the financial services industry and then snag a five-figure payday talking to hedge fund managers in Bermuda.” But it’d be equally crazy not to see that the availability of these kind of pay days might exert a distorting influence on scholarship. All you need to assume is that people respond to incentives. And if you think that’s a problem, you might try to dream up ideas — codes of ethics and disclosure rules, for example — that aim to lean against that distortion and restore balance.