Free «Economic Incentives: The Theory's Exposition» Essay Sample

The economic incentives’ theory deals with the factors influencing an individual in making choices for respective goods and services. The incentives guiding consumer choice may be monetary or nonmonetary, depending on the precise character of the goods and services involved. Opportunity cost of the discarded alternatives is not derived objectively, depending instead on subjective preferences of respective individuals (Gwartney, Stroup, Sobell & Macpherson, 2011, p.19). Finally, the growth in good or service’s cost leads consumers to refrain from their further purchase, driving down the demand (2011, p.44).

According to Laffort and Martimort (2001), economic incentives in principal-agent relations (e.g. in transactions between an employer and employee) are generally based on the perceived benefits of delegation of tasks. In addition, access to specific information provided by the principal to his/her agent may lead the former to accept the contract if he/she views the proposed benefits as outweighing the opportunity cost (Laffort & Martimort, 2001, p.28).

For instance, an independent contractor dealing with construction and design works may decide to review several offers placed by different households, selecting the one he/she believes the least costly. As the contractor takes into account possible expenses and risk factors for the orders in questions, he/she may try to define the future opportunity cost, while this calculation will be by no means objective and disinterested.

Biblical notions may help to guide the believers in their understanding of proper economic initiatives. As pointed by Beisner (1998), more than 50 different types of incentives are mentioned in the first 21 chapters of Genesis (1998, p.5). In total, all of them may be narrowed down to the basic concepts of reward and punishment. While offering the promise of the future eternal reward for beneficial actions, God threatens punishment for spiritual or physical transgressions and disobedience to His will (Beisner, 1998, p.7). This contributes to the increased standards of the believers’ behavior and may help him/her to conceive of not merely physical, but also spiritual, opportunity cost of his/her action.


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