Freakonomics Chapter1

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“Incentives are the cornerstone of modern life”(Levitt and Dubner 12). Levitt and Dubner once mentioned in their book “Freakonomics”. According to Oxford dictionary, incentives are something tends to incite to action or greater effort, as a reward offered for increased productivity (“incentives”). In business field, incentives are something given by bosses to encourage their employees to endeavour in bringing benefits to their business. For a simple example, the employee who hits the monthly or year sales target will get cash or prizes as incentives.

Apparently, these incentives are something that motivates employees maintains their great performance and also to motivate other employee, whoever wants to get the incentives, work harder. These incentives created competitive between employees which can definitely help in company’s growth. In Freakonomics, Levitt and Dubner once said “Economics is the root of the study of incentives: how people get what they want or need, especially when other people want or need the same thing” (Levitt and Dubner 16). Nevertheless, incentives stand an important position in the study of economics.

However, incentives that commonly involving in our life can be categorized into social, moral and economic incentives. “An incentive is always a tiny object with astonishing power to change a situation” (Levitt and Dubner 17). There are lots of examples whereby moral or social incentives and economic incentives are both present in Freakonomics. One of the examples which is being shown in recent years is about the anti-smoking campaign. “The additional of a $3-per-pack ‘sin tax’ is a strong economic incentive against buying cigarettes” (Levitt and Dubner 19).

In term of the additional tax, it helps the growth of economy in U. S. since there are more than 1 million people in the country are smoking. “The banning of cigarettes in restaurants and bars is a powerful social incentive”(Levitt and Dubner 19). It is because smoking is a type of misbehaviour and they do not want to be seen by others as doing something that others consider wrong. This example shows the single incentive scheme that included two varieties and this incentive is a positive incentive because its purpose is good. In fact, incentives are actually always happen surrounding of us, this is one of the good examples.

Incentive schemes which are including economic incentives and moral incentives do exist everywhere and Malaysia also not an exception. Malaysia is a rationally tax friendly country, there are “no wealth taxes, no gift taxes, no federal income tax, no accumulated earnings tax, no be in charge of foreign company legislation, no slight capitalization and no transfer pricing rules” (“Tax Low Global and Business”). The scenario is; a strong economic incentive like Malaysia always attracts more foreign investors to invest in Malaysia.

It is because Malaysia’s taxes rate is lower kindly compares to other countries where higher taxes rate are needed and with lots of rules and regulations, particularly China and Japan. Through investment from foreign investors, it can roughly grow Malaysia’s economy. Meanwhile, moral incentive is undoubtedly a strong negatively incentive when it comes to lower taxes/no taxes. This is because some of the foreign investors are developing black-market in Malaysia to help them earn much more money than they earned from other places since there are no/lower taxes being charged by Malaysia’s government.

In short, incentives are not really is good but it has its disadvantage too. Humans regardless of toddlers, woman, man or old-folks; Levitt and Dubner once argued that they are all learning to respond to incentives. “Whatever the incentive, dishonest people will try to gain an advantage by whatever means necessary to them” (Levitt and Dubner 23). For example, Israeli day-care was organizing a blood donation campaign and the economists wanted to find out the motivation behind the blood donation campaign.

According to their discovery, they found out that people likely to donate less blood rather than merely being praised for their unselfishness because they think “the stipend turned a noble act of charity into a painful way to make a few dollars and it was not worth it”(Levitt and Dubner10). But, if the organizer offers an incentive of $50, $500 or $5000, unquestionably there would have a lot of donors waiting for blood donation because they think the larger reward is worth than the pain. Undeniable, it is a common phenomenon in this materialistic world.

There is an example in Freakonomics shows the different incentives are complementary. For instance, the moral incentive has been taking place when parents were frequently late for pick up their children from Israeli care centres in Haifa and the moral incentive is that the parents will feel guilty and shameful due to their unpunctuality. Therefore, it does discourage parents from being late while economists decided to test their solution by enacting the bill which is paying $3 fine per child for the late arriving parents.

In this case, economic incentive have been taking place by moral incentive because the feeling of guilt that parents felt was cheaply replaced by $3 fine. After the fine was enacted, it was supposed to dissuade parents from arriving late but the number of late pickups went up drastically. This shows that the incentive was obviously backfired. In this case, both incentives are complementary because the guilt (moral incentive) of late parents felt was paid off by the $3 fine (economic incentive).

Stronger incentive in such case obviously is the economic incentive because parents are able to release their guilt by paying the economic penalty ($3fine). All in all, social, moral and economic incentives are always involve in our daily life and these incentives can be good or bad in every single incentive scheme. In the above examples, it shows the advantages and disadvantages of incentives in certain incentive scheme as well. Moreover, incentives are tangible but the thinking of human is unpredictable because one might think to betray others when they want to get the incentive. W. C Fields once said: a thing worth having is a thing worth cheating for”(Levitt and Dubner 20). Works Cited BSIRN. “Global Tax and Business Portal” Tax incentive in Malaysia. org. n. p. n. d. Web. 5 May. 2011. “Incentives” Oxford Dictionary, London: Oxford University Press. Print. Levitt, Steven D. , and Stephen J. Dubner. . “What Do School Teachers and Sumo Wrestlers Have in Common? ” Freakonomics: a Rogue Economist Explores the Hidden Side of Everything.. England: Penguin Books Ltd, 2006. Print.

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