Briefs: Incentive

incentive

An important factor in the study of economics is incentive. Incentive is defined as a thing that motivates an someone to perform an specific action. Obviously, there are different types or categories of incentives. Social or moral incentives are built on a persons character, where the motivation is the desire to do what is deemed to be the right thing to do. In economics, incentives are technically referred to as remunerative incentives, where the motivation is for some material benefit, usually money. Some economic incentives include profit, reduced prices, and wages.

An employee’s incentive to work is generally the expectation of a wage or salary. His incentive to work harder at his job or to take on extra responsibility is the expectation of a raise, or some other extra material benefit (perhaps even keeping his job altogether). He wouldn’t accept the proposition of the extra work without the expectation of a extra future benefit. And the employer knows that, also. The incentive for him to even sacrifice other leisure activities to further his education is the expectation of even more future material benefit, usually in the form of money, but maybe in the form of job security or leverage to find another job, if he is let go of his current job. With any economic incentive, there is an expectation of a future benefit (usually material) to the one the incentive applies to. The incentive of a sole business owner to hire a person to manage the finances of the business is the expectation that it will free up some of his time to expand his business or to focus on the current customers to maintain his clients. The incentive of a business owner to hire 40 full-time workers is expectation of the profit that those 40 workers will earn for the business, in one capacity or the other.

Incentive is one of the backbones of free market economics, as opposed to a socialist economic model where incentive is reduced or eliminated and the spiral of inefficiencies and waste rule the day.

Economics is life.