Self-interest is malleable, but the pursuit of it is not

Nice article by Russ Roberts, at EconLib.

Towards the end of the 18th century, England began sending convicts to Australia. The transportation was privately provided but publicly funded. A lot of convicts died along the way, from disease due to overcrowding, poor nutrition and little or no medical treatment. Between 1790 and 1792, 12% of the convicts died, to the dismay of many good-hearted English men and women who thought that banishment to Australia shouldn't be a death sentence. On one ship 37% perished.

How might captains be convinced to take better care of their human cargo?

You might lecture the captains on the cruelty of death, and the clergy from their pulpits did just that. You might increase the funds allotted by the state provided to the captains based on the number of passengers they carried. You might urge the captains to spend more of those funds for the care of their passengers. (Some entrepreneurial captains hoarded food and medicine meant for the convicts and sold them upon arrival in Australia.) You might urge the captains to spend the money more carefully. Shame them into better behavior.

But a different approach was tried. The government decided to pay the captains a bonus for each convict that walked off the boat in Australia alive.

This simple change worked like a charm. Mortality fell to virtually zero. In 1793, on the first three boats making the trip to Australia under the new set of incentives, a single convict died out of 322 transported, an amazing improvement.

I don't think the captains got any more compassionate. They were just as greedy and mean-spirited as before. But under the new regulations, they had an incentive to act as if they were compassionate. The change in incentives aligned the self-interest of the captains with the self-interest of the convicts. Convicts were suddenly more valuable alive than dead. The captains responded to the incentives.

ATSRTWT

Munger's "Fundamental Human Problem": How do we design, or maintain, institutions that make self-interested individual action not inconsistent with the welfare of the community?