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Saturday, October 15, 2011

Unintended Consequences in the Real World

This week I read George Stigler's An Academic Episode and Joshua Gans' The Most Unusual Day. Both readings explored the Law of Unintended Consequences. Stigler explored the unintended consequences of rules made in a university. Gans looked at the effects of a new birth law in Australia.

Stigler looked at a university in South america run by a man named Seguira. The new rules made it so grad students, associate professors, professors, and assistants could challenge each other to a test and switch jobs and salaries. This caused professors to retire, teach wrong information, and stop research. There was intense competition and rivalry and a mad rush to the library. The rules were repeatedly changed but always had negative consequences. Graduate studies almost stopped entirely. The rules were then obliterated.

Gans looked at a law made in Australia in 2004 that said any baby born after July 1st would get a $3000 bonus. The announcement was made a few months in advanced. This announcement caused birth certificates to be changed and caused all induced labor and caesareans to be virtually stopped. There was a giant overflow in the hospitals. Births were shifted. Was it worth it?

These two examples explained the Law of Unintended Consequences. Unintended things - usually bad - happened as a result of new laws.

Questions remain.
If the Australian government decided to make the announcement on July 1st and not in advance, would there still have been unintended consequences? Is this an example of when there would be no unintended consequences? I also wonder in in 2008 when the baby bonus was changed to $5000 if the unintended consequences happened again.
Also, did Seguira not realize how the new rules could not possibly end well. Did he think people would just work harder with no selfishness? Also what happened when the rules were wiped away? Was there a backlash or more unintended consequences?
Finally, is there an example of a law of unintended consequences where the consequences are good - or outweigh the negatives? We seem to look at a lot of examples of negative unintended consequences.

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