Free Naked Economics by Charles Wheelan Page A

linked in any way to performance; teachers’ unions have consistently opposed any kind of merit pay. Instead, salaries in nearly every public school district in the country are determined by a rigid formula based on experience and years of schooling, factors that researchers have found to be generally unrelated to performance in the classroom. This uniform pay scale creates a set of incentives that economists refer to as adverse selection. Since the most talented teachers are also likely to be good at other professions, they have a strong incentive to leave education for jobs in which pay is more closely linked to productivity. For the least talented, the incentives are just the opposite.
    The theory is interesting; the data are amazing. When test scores are used as a proxy for ability, the brightest individuals shun the teaching profession at every juncture. The brightest students are the least likely to choose education as a college major. Among students who do major in education, those with higher test scores are less likely to become teachers. And among individuals who enter teaching, those with the highest test scores are the most likely to leave the profession early. None of this proves that America’s teachers are being paid enough. Many of them are not, especially those gifted individuals who stay in the profession because they love it. But the general problem remains: Any system that pays all teachers the same provides a strong incentive for the most talented among them to look for work elsewhere.
    Human beings are complex creatures who are going to do whatever it takes to make themselves as well off as possible. Sometimes it is easy to predict how that will unfold; sometimes it is enormously complex. Economists often speak of “perverse incentives,” which are the inadvertent incentives that can be created when we set out to do something completely different. In policy circles, this is sometimes called the “law of unintended consequences.” Consider a well-intentioned proposal to require that all infants and small children be restrained in car seats while flying on commercial airlines. During the Clinton administration, FAA administrator Jane Garvey told a safety conference that her agency was committed to “ensuring that children are accorded the same level of safety in aircraft as are adults.” James Hall, chairman of the National Transportation Safety Board at the time, lamented that luggage had to be stowed for takeoff while “the most precious cargo on that aircraft, infants and toddlers, were left unrestrained.” 5 Garvey and Hall cited several cases in which infants might have survived crashes had they been restrained. Thus, requiring car seats for children on planes would prevent injuries and save lives.
    Or would it? Using a car seat requires that a family buy an extra seat on the plane, which dramatically increases the cost of flying. Airlines no longer offer significant children’s discounts; a seat is a seat, and it is likely to cost at least several hundred dollars. As a result, some families will choose to drive rather than fly. Yet driving—even with a car seat—is dramatically more dangerous than flying. As a result, requiring car seats on planes might result in more injuries and deaths to children (and adults), not fewer.
    Consider another example in which good intentions led to a bad outcome because the incentives were not fully anticipated. Mexico City is one of the most polluted cities in the world; the foul air trapped over the city by the surrounding mountains and volcanoes has been described by the New York Times as “a grayish-yellow pudding of pollutants.” 6 Beginning in 1989, the government launched a program to fight this pollution, much of which is caused by auto and truck emissions. A new law required that all cars stay off the streets one day a week on a rotating basis (e.g., cars with certain license plate numbers could not be driven on Tuesday). The logic of the plan