Should Christians Care About Incentives? An Economic Perspective – By Dr. Annd Bradley

What exactly are incentives, and why should they be important to Christians?

Yesterday we began answering this question by looking at how the Bible treats incentives. Today we’ll look at incentives from an economic perspective stemming from what the Bible says about reality and human nature.

As we’ll see, incentives can be a powerful tool in encouraging human flourishing and living out the whole-life stewardship we’ve talked so much about.

Incentives in Everyday Life

Each one of us engages with incentives, whether we realize it or not.

We all usually assess the payoff before engaging in a specific activity. If the cost of an activity goes up, we tend to see the quantity of that activity go down, all else equal.

For example:

• When it snows outside, you might decide to work from home if possible.

• If your daycare provider charges you for being late, you’ll try to drop you children off on time.

• A class held the day before an exam will have a high attendance rate.

In each of these examples, you are responding to an incentive or a perceived change in cost. It is costlier to drive in the snow, given the higher chance of accidents, so you might choose not to do it. If someone charges you for being late, you will try to be on time to avoid the charge.

Prices: Incentives for Stewardship

In a free economy, incentives are usually in the form of prices and property. These forms are critical not just for encouraging “good behavior,” but for overall flourishing resulting from wise, whole-life stewardship.

Prices help ration scarce resources and direct them towards their highest value use. When the price of something goes up, we tend to conserve that resource.

The price hike relays a signal to us: that good or service just grew scarcer – use it conservatively.

Gwartney, Stroup, and Lee, in their book Common Sense Economics, use the example of the record-high gas prices in 2008 to illustrate this concept. When gas prices skyrocketed, we conserved gas. I remember not using air conditioning in my car and eliminating gratuitous trips. I was trying to conserve a resource that had become more scarce.

We might not want prices to go up, but as participants in a free economy, we need prices, i.e. incentives, to be nimble. They convey information about relative scarcities that we would otherwise never have known.

The good news about a price increase like the increase in gas prices is that an increase sends an important signal to other producers: sell more of the commodity in question, get into this business. The price increase actually moves entrepreneurs in more productive directions so that eventually, the rest of us can have that particular good or service at lower prices.

Property Rights: Incentives for Flourishing

Property rights are another form of incentives, and an important aspect of attaining both wise behavior and human flourishing.

When you own something, you have a natural incentive to care for it and make it better. Think of how you treat your home or your car.

Without property rights, we don’t have the the natural incentive to care for something or to grow our resources. Someone has to have ownership to care for the resource.

In his book Money, Greed, and God, Jay Richards applies this concept to the plight of poor coffee farmers in developing countries:

Many farmers don’t have solid titles to their land, so they’re neither willing nor able to make long-term investments in it…

Further making the point that property rights serve as an incentive to flourish, Economist Hernando de Soto argues in his book The Mystery of Capital that the poor possess resources to prosper, but

They [the poor] hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated business with undefined liability…

Property rights and prices are just two examples of incentives and their importance in society.

So should Christians care about incentives? Yes.

When we better understand incentives, we allow economic thinking to help us become better stewards. By allowing prices to be as nimble as possible, and by defining and protecting private property – be it land, ideas, or capital – we have a chance at flourishing, especially the least among us.

[Copied from IFWE’s 1/9/2013 blog at: http://blog.tifwe.org/christians-incentives-economic-incentives/?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=810088&utm_campaign=0]

Should Christians Care About Incentives? A Biblical Perspective – By Dr. Anne Bradley

Understanding incentives helps us understand human nature. As economists James Gwartney, Richard Stroup, and Dwight Lee explain in Common Sense Economics:

Understanding incentives is an extremely powerful tool for understanding why people do the things they do because the impact of incentives can be seen on almost every level, from simple family decision making to securities markets and international trade…There’s no way to get around the importance of incentives. It’s a part of human nature. 

Lee further expounds on this in an article he wrote for the The Freeman. Discussing the power of incentives, Lee writes,

The surest way to get people to behave in desirable ways is to reward them for doing so – in other words, to provide them with incentives. This is so obvious that you might think it hardly deserves mention. You might say that people shouldn’t have to be rewarded to do desirable things.

Incentives are hardwired into human nature. God knows the anthropology of man, and he knows we need incentives to guide our decisions and behavior. Even before the Fall, God gave an incentive to Adam in the Garden of Eden. Genesis 2: 16-17 says,

And the Lord God commanded the man, “You are free to eat from any tree in the garden; but you must not eat from the tree of the knowledge of good and evil, for when you eat from it you will certainly die.

The incentive here is that if Adam obeys God’s command, he will live.

Furthermore, J.I. Packer argues that incentives are a part of our covenant relationship with God. He writes in the introduction to his work On Covenant Theology that while God initiates relationship with his people, there are blessings to be received as a reward for faithfulness:

The God-given covenant carries, of course, obligations. The life of faith and repentance, and the obedience to which faith leads, constitute the covenant-keeping through which God’s people receive the fullness of God’s covenant blessing. ‘I carried you on eagles’ wings and brought you to myself. Now if you obey me fully and keep my covenant, then out of all nations you will be my treasured possession’ (Ex. 19:4 f.). Covenant faithfulness is the condition and means of receiving covenant benefits, and there is nothing arbitrary in that; for the blessings flow from the relationship, and human rebelliousness and unfaithfulness stop the flow by disrupting the relationship. Israel’s infidelity was constantly doing this throughout the Old Testament story, and the New Testament makes it plain that churches and Christians will lose blessings that would otherwise be theirs, should covenant fidelity be lacking in their lives.

Even the New Testament makes clear that we can’t even love God of our own volition. We are selfish and greedy and sinful. Without Christ, we aren’t fully capable of that pure love that gives without getting (though common grace does provide for exceptions).

1 John 4:19 says,

We love because he first loved us. 

Our love is a response. Jesus, through his life, death, and resurrection, has given us a reason to love him. Our love is the acknowledgement of a very powerful and positive incentive. A relationship with Christ gives us:

1. Hope for today, and for the future.

2. A relationship with our Creator, the King of the universe.

3. A bond of love we could never otherwise conceive.

This is an attempt to look at incentives from a biblical perspective. Tomorrow I will compliment this view with an economic perspective on incentives.

Why do you think incentives matter? Why should Christians care about incentives? Leave your comments here. 

[TODAY’S BLOG is obtained from the 1/8/2013 Blog by The Institute on Faith, Work & Economics]