- Greg Mankiw (whose text I helped adapt for the Pacific Rim):
One of the Ten Principles of Economics is that “People Respond to Incentives.” On this father’s day, here is a story to remind us that this principle applies to would-be parents at well.
As Joshua Gans tells it, in May 2004, the Australian government announced that it would give a $3000 maternity allowance for babies born on or after July 1, 2004. So what happened?
No surprise: a decline in births just before the cutoff and a surge in births just afterward. Economists call this intertemporal substitution.
- Dan Drezner (my former Stanford classmate):
It should be stressed, however, that this is not the most bizarre government incentive scheme in recent years. No, you’re going to have to click here to read about the government incentive scheme that generated the most bizarre, disturbing — and yet thoroughly predictable — response.