With the UK’s Chief Med­ical Offi­cer, Sir Liam Don­ald­son, propos­ing that alco­hol should cost a min­i­mum of 50p per unit, many opposers are argu­ing that the increase would “pun­ish ordi­nary drinkers with­out deter­ring the winos, brawlers and wife-beaters”. How­ever, as Tim Har­ford notes, it may well work as the unlike­li­est of events are influ­enced by finan­cial incen­tives.

Econ­o­mists Joshua Gans and Andrew Leigh have dis­cov­ered that after the Aus­tralian gov­ern­ment announced that it would abol­ish inher­i­tance tax, effec­tive 1 July 1979, the death rate fell in late June of that year before surg­ing in early July. Gans and Leigh reckon that half the likely tax­pay­ers man­aged to escape death long enough to escape the tax too.

More cheer­ingly, when the Aus­tralian gov­ern­ment announced (with six weeks notice) a “baby bonus” of about £1,250 for fam­i­lies of chil­dren born on or after 1 July 2004, some­thing very strange hap­pened in the labour wards. The num­ber of happy events on 1 July was an all-time record, and twice as many births as on 30 June.

Whether enter­ing this world or leav­ing it, peo­ple respond to finan­cial incentives.

For a primer on incen­tives, you can do worse than read­ing Rus­sell Roberts’ Incen­tives Mat­ter arti­cle—one of the Ten Key Ideas from the Library of Eco­nom­ics and Lib­erty.

via The Under­cover Economist