Question

Why should policymakers think about incentives?

Short answer

Policymakers should think about incentives as they can influence the behaviour of the citizens who can help in achieving the goals of economic growth and development.

Step-by-step solution

Meaning of policymakers

Policymakers are the people or institutions responsible for formulating economic and welfare policies to achieve a desirable environment of growth and development and improve society as a whole. For example, a central bank is responsible for the monetary policies that affect a country’s inflation, employment, and growth rate.

Reasons why policymakers should consider incentives 

Policymakers should think about the incentives to find how people respond to different policy actions, whether it is good or bad. Incentives provide reasons for people to act differently. It makes them adjust their actions to increase their gain. Thus, a policy that offers greater incentive will be more accepted and favoured over others.

For example, the traffic rules demand the use of seat belts; however that doesn’t ensure its usage by people while driving. This can have an unintended consequence. But this behaviour can be changed by providing appropriate incentives like avoiding legal actions and monetary fines by wearing seat belts.