The use of financial incentives to prevent undesirable behaviors

Damien de Walque

No 8424, Policy Research Working Paper Series from The World Bank

Abstract: Behaviors that are putting people's health and well-being at risk are widespread in the developing world and some of them, like smoking and unhealthy diets, are on the rise. Some of these behaviors can be prohibited or prevented by taxation. But financial incentives such as conditional cash transfers are also increasingly proposed and tested to discourage such behaviors, in domains as varied as HIV/AIDS, drugs, alcohol, smoking, obesity, or early marriage prevention. This paper presents the theoretical justification for using such incentives, distinguishing between the price, income effects, and the nudge effects. The growing literature about the effectiveness of financial incentives to prevent undesirable behaviors is reviewed in detail for each type of harmful behavior. Finally, the paper discusses the long-term sustainability of such incentives, a key issue if they are to be scaled up beyond pilot programs and research projects. The current evidence on whether such incentives have an impact after they are discontinued is mixed. Some design features, like lotteries or commitment devices, could induce savings as well as increase effectiveness, therefore improving sustainability.

Keywords: Economic Assistance; Disability; Access of Poor to Social Services; Services&Transfers to Poor; Health Care Services Industry; Tobacco Use and Control; Public Health Promotion; Disease Control&Prevention; HIV AIDS; Communicable Diseases; Cholera; Leprosy (search for similar items in EconPapers)
Date: 2018-05-02
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