kuldeep@ku1deep
Someone asked, so I am moved to write about the principles of incentive design. A problem that Indian babus suffer from in extremis. Mostly because almost no one adheres to the principles of mechanism design: design the rules of a game so self-interested play produces the outcome you want. This is a field so deeply studied that three Nobel prizes have been awarded for it.
Here are my 10 principles of incentive design. Remember, I am an amateur so be kind.
First principle of incentive design is to accept you can never incentivise the GOAL. You can only incentivise a PROXY for it.
India hit near-100% enrolment. Half of Class 5 kids can't read a Class 2 text. The proxy was achieved. The goal was not.
Second principle is to write down every way the proxy can be satisfied while the goal is betrayed. If you can't find any, you haven't looked. The agents will.
Swachh Bharat measured toilets BUILT, not toilets USED. Districts declared "open defecation free" on construction counts. There is still shit on the streets, but nobody wrote down the gaps before declaring victory.
Third principle is that agents don't attack the deadline. They attack when the CLOCK STARTS. Whoever controls the start of measurement controls the game.
RTI has a 30-day clock. So PIOs bounce applications back as "unclear" or demand fees by post. No refusal, just resetting the clock. The deadline is intact. The start keeps moving.
Fourth principle is that pressure never disappears. It MOVES. Penalise delay and you get fast rejections. Penalise rejections and you get fast fraud.
Police stations are judged on crime rates, so they simply refuse to register FIRs. The Supreme Court had to make non-registration itself punishable.
Fifth principle is to never penalise a person for outcomes they don't control. They won't fix the system. They'll fix the MEASUREMENT.
Same police station example. The SHO doesn't control crime in his jurisdiction. He controls whether it gets recorded. So that's what they fix.
Sixth principle is that rewards attract people. Penalties FILTER them.
Ten years of downside-only jobs and you're left with people optimised for blame avoidance, not results. The good people leave. Every file in a ministry carries fifteen signatures because CAG can end your career for a decision that goes wrong, and nothing rewards the one that goes right. Bankers stopped lending. Officers stopped deciding. This is filtration.
Seventh principle is sequencing. Build tamper-proof measurement FIRST, attach stakes second. High-powered incentives on self-reported data always ensure industrialised fraud.
MGNREGA attached wages to self-reported muster rolls and got ghost workers at industrial scale. Aadhaar-linked payments and geotagged assets came AFTER, as repair — and that caused its own set of problems.
Eighth principle is that a price can kill a norm.
Delhi's construction regularisation fees PRICED illegal construction. Pay a fee, get it legalised. The price created a futures market in amnesty. Every builder stopped asking "is this allowed" and started asking "what will it cost later."
Ninth principle is that a rule is not a rule. It's the first move in a repeated game against adaptive opponents who have more time, more local knowledge, and more motivation than you.
Within months of GST launch, lawyers were in court arguing whether a paratha is a roti.
Last principle: every incentive scheme is a THEORY about behaviour. The agents are the experiment that falsifies it. Your job isn't writing the rule. It's pre-running the falsification.
EPFO just attached penal interest to a 3-day settlement clock, deducted from the commissioner's salary. Prediction: settlements speed up, document-error rejections spike immediately, and we never see a single salary deduction.
