A perverse incentive is a negative unintended consequence of a performance goal, evaluation criteria, incentive program, regulation or system.
|Definition||A system or practice that rewards negative outcomes.
|Examples||A corporate officer who will be heavily rewarded if a firm achieves high profits and will receive a large payment if they are fired has incentives to take excessive risks. If the risks pay off, they will be generously compensated. If the risks cause financial losses, they will be fired and generously compensated. Doctors who are paid to treat diseases but aren't compensated for prevention steps.
Subsidies that cause overproduction of a particular crop.|
|Related Concepts||Moral HazardConflict Of Interest|
This is the complete list of articles we have written about risks.
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