There Are Three Big Lessons When Designing Incentive Schemes

question 112

Essay

There are three big lessons when designing incentive schemes. Which of the lessons applies to each of the following cases?
A. In the Philippines, Cebu Provincial Detention and Rehabilitation Centre, a prison, tries to instill camaraderie and comradeship, and establish physical fitness among its prisoners by teaching them dance routines, such as Michael Jackson routines, as part of their daily exercise.
B. The manager of a transportation garage for the school district bus system is told to reduce the maintenance costs for the district's bus fleet over the next three months or risk losing his job. He therefore repairs only the worst problems knowing that performing minor repairs now will save money six months down the road.
C. In Bangladesh, the Grameen Bank offers small loans to borrowers who have no collateral. The loans are offered in sequential order to small groups of borrowers. Once the first borrower has established a repayment schedule, the second borrower gets the loan, and so on. It is in the group's best interest to maintain a good loan repayment schedule so that they are eligible for bigger loans as time progresses.

Understand the impact of discount rates and the timing of cash flows on the valuation of investments.

Describe the structure and application of time lines in financial problem solving.

Comprehend the difference between nominal and effective interest rates, and how they are calculated.

Grasp the concept of loan amortization and how payments are structured over time.

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Definitions:

Breadfruits

A large tropical fruit with a starchy interior, often used as a vegetable in cooking and significant in some Pacific and Caribbean cuisines.

Melons

In an economic context, this term does not have a specific definition, so it's likely referring to the physical good in agricultural or trade discussions.

Decrease In Income

A reduction in the amount of money received, often impacting an individual's or household's ability to purchase goods and services.

Budget Line

A graphical representation of all possible combinations of two goods that an individual can afford given their income and the prices of the goods.