Incentives and Values in Conflict-Prone Countries

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ImageOne of the most extraordinary examples of the use of economic principles comes from the beginning of the 19th century, when England used to send a huge number of prisoners to Australia. The government originally paid the ship captain a pre-determined amount for each prisoner that boarded the ship, but half of them would die during the journey. In 1862, Edwin Chadwik, knowing that people respond to incentives, told the U.K. government to pay captains according to the number of prisoners that actually disembarked in Australia. With this adjustment, the survival rate increased from 50% to 98.5%.

This example illustrates how incentives can do wonders in some circumstances. Yet, human actions are not always guided by the same calculations made by a profit maximizing ship captain. Behavioral economists have emphasized that we respond to a deep ingrained sense of fairness. Culture and values are crucial in understanding human behavior and promoting healthy and stable societies.

ImageSándor Márai, a Hungarian writer, had one of his heroes asking a friend if she had ever tasted olives filled with tomatoes.As in the case of olives, he explains, the combination of the innumerable tiny tastes forms the extraordinary dish that we call culture. He was trying to make his friend understand that culture (this virtual structure that guides our reflexes and is the source of our happiness) was about to expire in the ruins of besieged Budapest.

Márai’s reflection comes to mind as I read about incessant destruction in Afghanistan and Pakistan and begin to work as an economist in countries torn by violent conflicts. How can we help promote peace and development in South Asia?

People in the region identify jobs as high in the list of their priorities, a good reason to have the South Asia Flagship Report for fiscal year 2010 discussing how to get more and better jobs in the region. Employment has a social value in conflict prone societies that goes well beyond income generation. Like everywhere else, the work we do contributes to our sense of dignity and inclusion. But beyond this, job creation in conflict prone societies can help prevent armed-conflict from shifting towards crime, burglary and drug related violence, thus stopping the deterioration of human values which is key for the well functioning of peaceful societies.

What do you think?


Eliana Cardoso

Former Acting Chief Economist

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