But if incentives are designed badly, perverse (unintended and undesirable) outcomes are sure to follow.

For example, Wall Street year-end bonuses seemed fine on the surface until we, as a society, discovered how these bonuses incentivized bankers (mostly at the too big to fail banks) to take on huge risks with tons of debt.  If things went well, the upside belonged to the bankers.  But if things went badly, the downside belonged to the American people.

One can moralize about the greedy nature of the bankers but the root of the problem lies with the perverse incentives at work.  When profits are shared among a select few but losses are spread across the larger society, the incentive to take on huge risks with debt can be both corrupting and overwhelming.

Sadly, banking is not the only area of concern.  Primary elections  that are dominated by small ideological groups,

the politicians’ need to raise ever-larger sums of money for their perpetual campaigns, the proverbial revolving door between government officials and industry executives, and a fee for service healthcare system that has little price transparency are just a few other examples of perverse incentives at work.

When a political and an economic environment or even a private institution becomes infected by perverse incentives even those individuals that mean to do the right thing will often find it extremely difficult to do so.  They will either have to adapt to the corrupt environment to survive and prosper, leave or be driven out.

Perverse incentives are like an infectious disease.  Unless isolated and treated, they will continue to spread till they eventually contaminate the whole system.

American Incentives' objective is to highlight a number of perverse incentives that are undermining the American politics, economy, healthcare, education, etc.  It will also try to offer some possible solutions.  It is imperative that we recognize the problem of perverse incentives in America. 

As each report is completed, it will be posted to the site.