Comment by randomwalker | Hacker News Reader

Comment by randomwalker | Hacker News Reader

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It is easy to underestimate the difficulty of creating the right incentives.

In the 1940’s, the paleontologist von Koenigswald was searching for early human remains on Java and decided to enlist the help of the locals in his search by offering them “ten cents for every piece of hominid bone they could come up with.” Unfortunately for von Koenigswald (and for his findings), he discovered too late that the locals “had been enthusiastically smashing large pieces into small ones to maximize their income.”

From http://freakonomics.blogs.nytimes.com/2009/10/20/when-youre-...

(The story is from the book A Short History of Nearly Everything, which is one of the best books I've ever read. The amazing thing about the book is that it is in fact a short history of nearly everything.)

Combine the difficulty of getting incentives right with the inherent problems of Government and a dangerous mix results. For example, every time a subsidy is created, a special-interest group sprouts up dedicated to preserving the subsidy in perpetuity, long after it has outlived its utility.

> It is easy to underestimate the difficulty of creating the right incentives.

My favorite "Incentives matter" story is FedEx - they were having a hell of a time getting drivers to get packages shipped on time. They tried all sorts of things - threatening, praising, performance reviews, training, etc.

None of it worked.

Then they changed their pay from "per hour" to "per shift" - you work a shift, you get paid a certain amount. Go home when you complete your shift, regardless of how long it takes you.

Right away, their on time rate went massively up - in fact, a lot of shifts started being completed early at that point.

The danger of this sort of an incentive is that there may be some hidden externalities that will be exposed. I wonder if the accident rate per shift also increased when this system was established (c.f. Dominos delivery and unintended liability...)

I was a driver for a big pizza firm. We were paid bonuses depending on how fast we delivered.

Unfortunately for me, I wasn't close friends with the manager of the store. He gave all the shortest runs to all his mates, making it nigh on impossible to get a bonus unless you suffered his patronage.

True but to be driver with fedex or ups you must have a clean driving record in the trucks. I think it's a two or three strike policy on any accident.

This sounds like the equivalent of ROWE.

So what happened next? Did FedEx management cut pay since the job was easier than they previously thought?

I'll tell you what happened--they started reporting "nobody at home" so they didn't have to ring the doorbell. Haven't you ever been sitting at home waiting all day for a package to arrive, only to find on the website that the driver reported "nobody home"?

I've had more problem with that from UPS. Both my wife and I were home all day, hell I even at one point went to the porch and waited outside for the package to arrive. UPS truck never came by and driver claimed "nobody home". Had to go to UPS center and pick up the package at the guard shack and there were about 12 other people. The guard said, "Wow that's funny you're all here to pick up packages from the same truck/driver."

Surely they track each driver's "nobody home" stats and fire the drivers with noticeably higher rates.

Haven't you ever been sitting at home waiting all day for a package to arrive, only to find on the website that the driver reported "nobody home"?

Nope. Not once, ever.

But then again, I don't use FedEx Home Delivery, as they are not actually FedEx. (FedEx contracts that out to random local trucking companies. The express deliveries are the ones they handle themselves, and fortunately everything I get via Amazon Prime is either UPS or FedEx Express.)

So Fedex also supplies the local contractors with branded trucks and uniforms for the Fedex Home delivery? I have seen such people pull the not ringing the door bell stunt and had to go run out after them. If those aren't Fedex employees it seems like a sure fire way of ruining their reputation.

So Fedex also supplies the local contractors with branded trucks and uniforms for the Fedex Home delivery

They do indeed: http://www.braunconsulting.com/bcg/newsletters/winter2004/wi...

(When I was a contractor for Bank of America, I got the same Bank of America business cards that everyone else did. Contracting does necessarily mean "setup this one webserver" or "deliver these 83 random boxes today"; it can also be a full-time thing.)

I assume they don't mind the reputation damage because the price is what matters in the "home delivery" business. They care that their $100 overnight letters get delivered on time; your 60 pound box of laundry detergent doesn't mean much to them.

Actually being that they are contractors, they supply that stuff themselves. My uncle had a few of those trucks that he owned and was paying drivers to operate for a while.

Yup, my dad did this for a while. Had to buy the truck. In a rural area this was a real losing proposition, the area he had to cover was so huge he was putting in 12hrs a day to get everything delivered. With all the wear and tear on the truck, causing it to need regular repairs it eventually became apparent that he was losing money delivering their packages.

In my (small) town fedex, ups and purolator are all the same one guy. And he's not very dependable. I have the "not home' problem all the time.

This is exactly what happens. I often work from home, and I see them do this all the time.

You would think that with the explosion of personal shipping in the last fifteen years caused by the Internet, that these companies would have figured out residential deliveries by now but, if anything, it's become worse.

I've had this happen. I always try to get residential deliveries from UPS because they seem to understand this better. Maybe Fedex needs to add an incentive for successful deliveries instead of just completing the shift. Or maybe they don't care because they really focus on business deliveries and residential is just a distraction.

My buddy owns a small courier company (which I helped found a few years back). I'm about to write a piece of android software for his couriers to solve exactly this problem: when they get a "nobody at home" situation, they'll have to post a note on the door, then take a picture of the note and scan the package, while the software records the GPS (or network) coordinates.

A HTC Wildfire is around $50 with subscription, and once all couriers have them we intend to extend the system as much as we can. Lots of cute stuff should be possible with a combination of camera/barcode reader/gps/internet device.

I used to get this all the time, I once received an 'undelivered' slip for a package allegedly attempted to be delivered at 11am, but the slip was pushed through my mail slot at nearly 2pm. I was out the door and saw the truck driving off, was back in and called the number on the slip and told them, not so politely to put the manager on the phone right now. Explained what just happened, from that day on my package was always delivered.

A million times.

I try to find some consolation in believing that me reporting them will have some effect.

An old friend from India told me a parable he brought from his homeland. It's similar to this, except it backfires on the greedy guy.

There's a king who wants have very rich and flavorful soup, so he tells his chef that, for every drop of grease floating in his bowl, he will pay a coin. The greedy chef wants to maximize his pay, so he dumps a lot of oil into the soup. Of course, this results in a single oil slick across the entire top of the bowl, so the king pays him only a single coin.

Mmmm. Oil-covered soup! I think that one backfires on everybody involved.

Creating correct incentives is difficult because it requires

   (A) Articulating exactly what you want
   (B) Measuring that accurately
   (C) Keeping out things you don't want

None of these are easy problems to solve. And they are generally ignored because most people don't realize they are problems at all.

It is like getting a genie to grant you your wish. :)

A classic example are the companies that have sprung up for the sole purpose of maximizing Medicare payouts. Ever see those ads for scooters on TV "at no cost to you"?

An acquaintance used to work for a doctor's office where they used billing software designed to find the best treatment codes to use when preparing a bill. The goal was to select codes for those things that were covered by Medicare or insurance.

Every so often someone would call up and ask about some odd item on their bill, and it would end up being some bullshit charge for something they didn't get, or a carefully selected charge that was similar to, but not really, they service that was actually provided.

But since most of the time the costs were covered by some other party most people didn't bother inspecting their bills or statements, or bother looking closely at what was charged.

I hadn't heard those places were bad, but they do seem a little too good to be true. If there's a scam, do you know how it works?

1) Make a scooter that costs you $1000.

2) Price it at $5,000. No one would actually pay that price of course.

3) Let people who have Medicare get them. Send the bill to Medicare, which is obligated to pay because it's a covered medical appliance.

My very first thought on seeing the title was, "Where is this a problem?" (Didn't realize they were talking about the past.)

My second, immediately following thought, was "Pay them to not kill passengers."

That's progress - how to get simple incentives right is a lot more obvious now to economically literate folk than it was back then.

Hayek sums it up nicely: "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

Sorry, off-topic: I highly recommend the audio book version of A Short History of Nearly Everything narrated by Richard Matthews (not the one narrated by the author).

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