The perverse incentive

My new favorite phrase of the week is ”perverse incentive,” a concept and a construct that seems to suit the arts and culture world in so many ways. The term describes a policy that is intended to promote one outcome, but that instead creates the opposite, or fosters a countervailing negative effect. Some examples from the Wikipedia entry:

• Funding fire departments by the number of fire calls made is intended to reward the fire departments that do the most work. However, it may discourage them from fire-prevention activities, which reduce the number of fires.
• The U.S. Endangered Species Act imposes land-use restrictions without compensation on people who have endangered or threatened species on their property. The intention is to protect at-risk species, but in practice this causes landowners to make their land unsuitable for the protected species, so the species will go elsewhere, and the government will leave them alone. This can cause more harm to species than if the ESA did not exist.
• Paying architects and engineers according to what is spent on a project leads to excessively costly projects.
• Where libraries, universities, and similar institutions charge a higher
  fee for copying than for printing, users may print multiple copies of a
  document, which could cost the institution more than free copying would.

It’s a sub-species of the ”unintended consequence,” but a particularly insidious one. Here are just a few from the arts that pop into my head:

• To focus grantmaking, funders restrict money to project costs (refusing to fund overhead), leading arts organizations to either pad their variable costs to compensate, ignore the overhead in their strategic assessment of whether to accept the grant, or distort their own understanding of what a project or program actually costs. As a result, the funders help create grantees who are less strategic, less transparent, and less able to contain costs.
• Cultural facility projects place specialists and major funders in primary control of the design process, to ensure that the perceived primary constituents are connected to the outcomes. However, this narrow focus of constituents often leaves out the primary power-users of the building — the audience, the front-line staff, and the custodial team. The outcome is often a building that inhibits mission delivery, rather than enhances it.
• Development officers are evaluated on year-to-year increases in total contributions, leading to slash-and-burn development strategies and high staff turnover, rather than long-term relationship building and life-of-the-donor value strategies.

That’s just off the top of my head. Where in your organizaiton, or among your funders, have you noticed perverse incentives?