Your Money


On Fridays we talk about your money. And this morning we'll explore what money can buy and what it can't.

A few weeks ago on this program, New York City Mayor Michael Bloomberg, who's a billionaire, by the way, explained his plan to pay schoolchildren for good attendance. His pilot program would even pay parents for showing up at parent-teacher Conferences.

Mayor MICHAEL BLOOMBERG (New York City): We are a capitalist society. And you can argue that a lot of the things that Congress subsidizes people should do anyways, but the truth of the matter is when you have a bonus, you tend to work harder and do more.

INSKEEP: Sounds like straight economics, but Tyler Cowen argues that it is not always that simple. He's an economist, a blogger and author of "Discover Your Inner Economist," a book about using incentives in real life. And at one point he writes money often isn't the best motivator. Welcome to the program.

Dr. TYLER COWEN (George Mason University): Thank you.

INSKEEP: What about in this case with Michael Bloomberg's plan to pay kids to show up at school, is that a good idea?

Dr. COWEN: Not everything can be bought and sold. We don't buy and sell all the decisions in families. Usually it's better for children to feel an obligation to go to school and get good grades. And by paying them, it becomes a matter of choice rather than a matter of feeling they simply ought to do it.

INSKEEP: Has anybody actually studied the idea of paying kids to show up at school?

Dr. COWEN: Absolutely. There is a literature on what you can pay children to do, and there's a lot of evidence from experiments that it's often counterproductive to try to pay them. In my family, my wife and I, we try to pay our daughter to do the dishes, and within a few days she stopped doing them altogether. She viewed the payment as a means of controlling her.

INSKEEP: How much were you paying?

Dr. COWEN: Just a few dollars over the course of the week, which to her was maybe a lot of money. But she had the sense she'd get the money back anyway, and that if she would do the dishes for money, what else would we try to pay her to do? Choose a major? Choose a college? Have the right boyfriend? She got very nervous about the idea.

INSKEEP: She said take this job and shove it, is what she told you.

Dr. COWEN: She didn't say it, but she stopped doing the dishes.

INSKEEP: When you walk down the streets in a busy city, passed stores and restaurants, I suppose you're seeing a million potential economic transactions, people thinking about things that they want, where they want to go, where they want to eat, what they want to order on a menu. But what are some things that you look for to improve your daily life? What kinds of things do you try to make sure you're getting the best service, the best products, and having the best experience?

Dr. COWEN: I use economics to eat well. I tend to avoid restaurants that are on the main street. They tend to be high-volume restaurants geared toward tourists.

INSKEEP: Is there an economic reason that the hard-to-find restaurant would be a better restaurant?

Dr. COWEN: Well, no one will stumble across it accidentally, so they don't get business simply because they're on Fifth Avenue or some main thoroughfare. People have to know it's good, and people have to take the time and trouble to get there - and that usually means good food.

INSKEEP: Hmm. What about adventurous eating? If you're looking for a good ethnic restaurant or something you haven't tried before, how do you know if you're getting into anything any good?

Dr. COWEN: Competition is a good place to look. Competition, for the most part, it does lower prices and raise quality. So if you're in a city you don't know well, you don't know where to eat, look for an ethnic cuisine represented by a large number of restaurants. So if you live in Virginia and you eat Vietnamese food or Thai food or El Salvadorian food, it's almost always good.

INSKEEP: I want to come back to this distinction between when money works and when money does not. Is money in some ways, when you get down to it, an insidious motivator, something that does more harm than good?

Dr. COWEN: Oh, I think we need monetary incentives. People need to be rewarded for the value they create. But the question is, what's the right mix of incentives, for money or pride, and how to find that right mix. And economics can help us there.

INSKEEP: Coming back to that example of your daughter and the dishes, what motivation, if any, worked on your daughter?

Dr. COWEN: There was one solution that finally worked. She was leaving for college, and perhaps she thought that she could do the dishes without setting a precedent for all of eternity.

INSKEEP: Tyler Cowen is an economics professor at George Mason University. He also writes for the blog Thanks very much.

Dr. COWEN: Thank you for having me on.

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