The Incentives Around Low-Market Housing

The Incentives Around Low-Market Housing

Low income renters face a lot of challenges in terms of maintaining stable housing. For those with low incomes, affordable rental units are hard to find, and the competition for such units means that any error or slip-up on the part of the renter could land them on the streets with no where else to go.
In Evicted Matthew Desmond writes, “the high demand for the cheapest housing told landlords that for every family in a unit there were scores behind them ready to take their place. In such an environment, the incentive to lower the rent, forgive a late payment, or spruce up your property was extremely low.” A lack of affordable housing and high competition among low income renters means the incentives for landlords are not in favor of the renters. Landlords know they can boot out a tenant who has young children that cause problems, or a tenant who misses a couple of rent payments, or a tenant who complains too much about problems with the property and quickly find a replacement. There are no incentives to have a nicer property to attract new tenants. There is no incentive to work with a tenant who was just laid off or had unexpected medical bills to repay late rent.
This puts low income renters in dangerous places. They cannot pass up low rent opportunities at units that are in bad condition, because if they pass, someone else will take it and they will be without a place to live. Low income renters cannot afford to have a child break a window, because they may be more likely to be kicked out of the unit than to have the window repaired timely. Additionally, they are unlikely to get a break if they hit an unlucky spell with work or health that prevents them from making rent. In many ways, the incentives around low-income housing lead to unhealthy and exploitative relationships between the poor and their landlords. Throughout Evicted Desmond explores these relationships and the real psychological costs that this reality creates for low income renters.
Markets and Environmentalism - A Call for Better Incentives

Markets and Environmentalism – A Call for Better Incentives

Earlier I wrote that climate change and environmental concerns seemed to be too large of a problem to be left to nudges. Toward the end of Nudge, Cass Sunstein and Richard Thaler acknowledge the reality that nudges alone cannot tackle climate change, but they still encourage actions that follow the spirit of nudges, or at least learn from the psychology that makes nudges effective. Incentives play a huge role in behavior, and  need to be considered when governments approach businesses in an effort to redress the harms of climate change. Markets and environmentalism cannot be separated if we are to have a sustainable climate. Better incentives need to be implemented within markets to adjust for environmental needs.

 

The authors acknowledge market failures related to climate change by writing, “when the air or the water is too dirty, the standard analysis says that it is because polluters impose externalities (that is, harms) on those who breath or drink. Even libertarians tend to agree that when externalities are present, markets alone do not achieve the best outcome.” Pollutants are common externalities, as are traffic congestion and decimated wildlife populations. The cost of negative externalities is squarely on the shoulders of the individuals in the market, either the consumer or the producer. Governments are necessary to deal with these externalities and prevent them from harming innocent bystanders.

 

Additionally, regarding market failures and climate change, the authors continue, “When people are not in a position to make voluntary agreements, most libertarians tend to agree that government might have to intervene.” Most libertarians agree that labor contracts should be voluntary, with an employer reserving the right to hire anyone, and laborers reserving the right to walk away if their wages or working conditions are unfair. In reality, many people would starve if they walked away from a job, or at least face serious challenges, so voluntary agreements are not always possible. Within the climate change arena, many people cannot simply chose to travel to work by more fuel efficient methods, many people cannot afford the switch to solar power, and many other potential solutions are similarly unavailable, meaning people and businesses are often stuck, involuntarily, with polluting norms for travel, work, and heating or cooling their homes and offices. Markets alone don’t provide the impetus to change the status quo to reflect the reality of climate change.

 

The next post will dive deeper into the incentives and solutions to these problems, but it is clear that markets alone will not direct society toward a climate change solution. The danger of climate change is a long-term danger, where the costs are not experienced in the immediate moment but are instead experienced years and decades later. However, the costs of making adjustments to limit climate change are experienced up front. Upgrading infrastructure, investing in electric and solar technology, and living in more economically friendly ways present immediate costs that nudges cannot overcome. Nevertheless, we can consider the ways in which nudges work and build on those principles to begin to make changes. We can start to better align incentives to limit externalities, and we can preserve choice structures as we move forward with investments and innovation to help us meet the needs of the climate crisis. Government will play a big role and can learns a lot from the psychology of nudges to help address the challenges we face.
The Specter of Rationing Care

The Specter of Rationing Care

American’s fear having to wait for anything. We want to order things from the comfort of our own home and have them delivered in two days. We don’t want to wait behind more than three people in line at the grocery store, and we don’t want to wait for medical care (to be honest these are all examples from my own life – not picking on anyone who isn’t like me here). Our fear of waiting is used as a reason against universal health coverage. We are told about Canadians who cross to the United States to have surgeries that they would have to wait several months to have in Canada. We are told that we won’t be able to schedule an immediate primary care appointment if more people were to have access to health care. And we are told that the high costs of medical care stop unnecessary care from happening, preventing us from having to wait to see a doctor.

 

However, these fears of waiting and the specter of rationing care presented to us in these scenarios is overblown. It is true that some Canadians chose to get care in the United States for elective procedures, but presenting that fact to us in isolation is misleading and done in bad faith. The reality of our waiting for care is much more complex. Dave Chase does a good job of explaining it in his book The Opioid Crisis Wake-Up Call, “People often raise the specter of rationing care. In reality, it’s overuse (i.e., unnecessary and potentially harmful care) that leads to reduced access by squandering enormous financial resources that would be better used for individuals who actually need care and can’t get it.”

 

We act as though our healthcare system is following good market incentives to find a good balance between wait times and receiving the right care. But we often fail to acknowledge that our healthcare system isn’t performing like an ideal market, and that it often pushes people to too much of the wrong type of care. Chase details this in his book with unnecessary back surgeries. Those who have a legitimate need for a back surgery might have to wait, because primary care providers get a bonus when they refer patients to orthopedic surgeons who are paid to operate. The right path for a patient might be physical therapy, but the money for the providers is in the surgery.

 

We should not raise the specter of rationing care when we are so wasteful with the care we provide through our current system. We waste a lot of money when we don’t have a concern about rationing care, and when we reward providers for doing more surgeries, prescribing more pills, and offering more treatment, even if the efficacy isn’t proven. In his book, Chase doesn’t advocate for a universal coverage system with healthcare covered by the federal government, but he does show how employers today can do more to ensure their patients get more of the good care (the effective PT and preventative check-ups) for free. This reduces the demand on the expensive and unproven treatments later on, and actually reduces the demand on the system for services that we are afraid of rationing.
Pay and Chase

Pay and Chase

If you were working to set up a healthcare plan for your employers, you would want to make sure that payments by the insurance plan were quick so that your employees were not constantly bombarded by letters and phone calls from doctors offices asking when they would be paid by the insurance plan. You also would want the plan to have a system in place for catching fraudulent claims or errors in charges from hospitals and doctors offices. Both of these desires are reasonable, but in the real world, they have created a system of perverse incentives that Dave Chase calls “Pay and Chase” in his book The Opioid Crisis Wake-Up Call. Here is how Chase describes it in his book:

 

“Another fee opportunity is so-called pay and chase programs, in which the insurance carrier doing your claims administration gets paid 30-40 percent for recovering fraudulent or duplicative claims. Thus, there is a perverse incentive to tacitly allow fraudulent and duplicative claims to be paid, get paid as the plan administrator, then get paid a second time for recovering the originally paid claim.”

 

Insurance companies administering health insurance don’t actually have an incentive to create tools to proactively stop fraud. They actually benefit when there is fraud, because they get a bonus when they spot the fraud and recoup the already paid fraudulent amount. As an employer partnered with the insurance company, you might be happy that claims are paid quickly so that your employees don’t have negative interactions with doctors about payment, but the way that many plans currently operate, you will end up paying a lot more overall when your plan pays for fraudulent claims and billing errors. You will pay for the fraud itself, and if you get any money back, it won’t be for the full amount that your claim administrator originally paid in the fraud or error – they will keep a cut.

 

Chase continues, “Many of the fraud prevention tools used by claims administrators are laughably outdated and weak compared to what they are up against. Modern payment integrity solutions can stop fraud and duplicate claims, but aren’t being used by most self-insured companies’ claims administrators.”

 

Poor incentives and confusing systems have allowed this to occur. This is one example of how the systems around healthcare in the United States are not aligned with what we would all agree should be the number one focus: improving the health of Americans. Employers don’t want their employees to be angry, and plan administrators want to maximize profits. In the end, we all pay more as fraudsters find ways to get past the outdated fraud prevention systems of insurance companies and as those companies turn around and charge fees for catching the fraud and payment errors they didn’t prevent in the first place.

Seeing Yourself With A Little Distance

In his book The Ego is the Enemy, author Ryan Holiday writes  the following, “You must practice seeing yourself with a little distance, cultivating the ability to get out of your own head. Detachment is a sort of natural ego antidote. It’s easy to be emotionally invested and infatuated with your own work. Any and every narcissist can do that. What is rare is not raw talent, skill, or even confidence, but humility, diligence, and self-awareness.”

 

In this quote, Holiday is encouraging us to focus on our work and goals in a way that is not flashy and that does not seek praise. He is encouraging us to practice the skill of doing good and meaningful work, even if we are not immediately recognized for what we do. Often, the important work that must be done isn’t sexy and isn’t visible to the people we want to impress. We won’t always be immediately rewarded with a trophy or a bonus for the work that needs to be done, but if we are the one to put in the extra effort and effectively and efficiently do a good job, we can find our way to success.

 

The flip side, and what Holiday is urging us to avoid, is doing work only when people are watching. He encourages us to recognize and work against the expectation that we will be noticed and recognized for our work, because the public recognition is not the most important piece of what we do. If we only put forward hard work and extra effort when we know our effort will be visible and publicly rewarded, then our effort in is not actually about the work, but instead about the praise and status that comes looking impressive. We may like the praise and incentives do matter for human beings, but if we are trying to approach the world rationally and make a difference, then we should recognize that this approach to life and work likely won’t guide us toward making the biggest impact possible.

 

When I was a child, one of the chores I always hated was vacuuming. When I would actually do what my parents had told me and vacuum, I intentionally leave the vacuum out because I knew that my mother would then have to acknowledge that I had vacuumed. I would be sure to get a “thank you for vacuuming, now can you please put the vacuum away?” but if I did my work completely and put the machine back in the closet when I finished, I risked getting no notice from my mother for having completed my chore. This is the childish mindset that Holiday is encouraging us to get away from when it comes to doing important work in our life. We should strive to be successful in life because it will mean that we are making a difference in the world or can obtain further resources to allow us to do more through charity and meaningful good deeds. What we should avoid is working hard to try to improve our status and to have more ego inflating fun trips and toys to try to set us apart from others. Focusing on the first goal will ultimately take us further and lead to better quality work and engagement with the world than the second ego inflating goal. Only performing and doing our best work when we can be praised for it will lead us to situations where we fail to cultivate habits of hard work and focus, and will drive us to positions where we are not working for ourselves and for the good of humanity, but for our ego and to make showy purchases to impress other people that we likely don’t even care much about.