Browse MBAs SECTION 4: Managerial Economics

The Incentives & Externalities Analyzer

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The Incentives & Externalities Analyzer

Analyse the incentives and side-effects in this situation — who's
motivated to do what, and what spills over.

The situation: [DESCRIBE — A POLICY, PRICING SCHEME, COMPENSATION PLAN,
OR MARKET]
The players: [LIST]

Provide:
1. What each player is actually incentivised to do (vs what we intend)
2. The perverse incentives or gaming the design invites
3. The externalities — costs or benefits landing on people outside the
   deal
4. How to realign incentives toward the outcome I want
5. The unintended consequences to watch for

The core question: are people rewarded for the behaviour I actually want?
Show where they aren't.

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