Tuesday, August 29, 2006

bureaucracies create perverse incentives

From Sorry plight of India farm widows, BBC World:

1. Manohar Kelkar ended his life by hanging himself from a tree...Trapped in debt, the cotton farmer in the western Indian state of Maharashtra was driven to commit suicide by despair and hopelessness....the state's cotton growing belt of Vidarbha where, on average, one farmer commits suicide every eight hours...."He kept talking about the mounting bank debt, but I never thought he would commit suicide,"

2. Prime Minister Manmohan Singh...visited the region a few weeks ago. He pledged five million rupees ($100,000) to help widows in each district. A widow is normally paid 100,000 rupees (a little over $2,000) as compensation by the state government.

Let's summarise:

1. Thousands of farmers are committing suicide, driven to despair because they do not have adequate money to look after themselves and their family, because they have no hope or opportunity of improving their financial situation, and because many of them have heavy and mounting debts they cannot afford to repay.

2. So what does the Government do? It says that if a farmer commits suicide, they will provide his family 1 lakh rupees! Suicide will be rewarded by the provision of financial assistance to your family, the same assistance that you the farmer failed to provide!

3. So now, not only is suicide an act of hopelessness and despair, suicide is the best chance a farmer has of providing his family with the money they need. The Government is addressing the issue of rural deprivation by incentivising farmers who commit suicide!

4. To state the bleeding obvious, this is a terrible and perverse incentive.