Rand Paul, referring to criticism of BP’s handling of the oil spill says
“What I don’t like from the president’s administration is this sort of, ‘I’ll put my boot heel on the throat of BP,'” Paul said in an interview withABC’s “Good Morning America.” “I think that sounds really un-American in his criticism of business.”
“And I think it’s part of this sort of blame-game society in the sense that it’s always got to be somebody’s fault instead of the fact that maybe sometimes accidents happen,” Paul said.
This is symptomatic of the perennial time-inconsistency problem that comes with incentives for good behavior. The incentives are structured so that when bad outcomes occur, BP will be punished. If the incentive scheme works then BP acts in good faith and then it is true that bad outcomes are just accidents. The problem is that when the accidents happen it is true that BP was acting in good faith and so they don’t deserve punishment. And if doling out the punishment requires political will then the political will is not there. After all, who is going to stand up and demand that BP be punished for an accident?
This is the unraveling of incentives. Because the incentive worked only because BP expected to get punished whether or not it was an accident. To prevent this, it is the politician’s job to stir up outrage, justified or not, in order to reignite the political will to dole out the punishment. The blame game is a valuable social convention whether or not you believe there is someone to blame.
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May 21, 2010 at 12:33 pm
Johan
Is it fair to say that it follows that good performance should be rewarded regardless of whether it was on purpose or by accident?
May 21, 2010 at 12:50 pm
jeff
There is a subtle answer. It depends on a distinction between “no news is good news” vs “no news is bad news.” Oil spills are a “no news is good news” world. Every day that goes by without a spill is good news. Good news happens just about every day. Bad news happens very rarely. In these settings the optimal incentives are punishments loaded onto bad news events. When (no news=) good news happens its just business as usual.
The reverse is true when no news is bad news. For example I complete a paper about once every 6 months. All the other days there is no news. The right way to incentivize me is business as usual when I don’t produce a paper, 1000 virgins in Heaven when I do produce a paper. Even if it is about torture.
May 21, 2010 at 1:14 pm
el chief
How exactly was it an accident? it’s an accident in the same way that having fireworks in a night club and watching it burn down is an accident. BP fucked up somewhere, whether they used cheap parts, or didn’t follow a recommended procedure.
It’s not an accident, and you’re just a shill.
May 21, 2010 at 1:20 pm
jeff
I did not write whether I personally believed it was an accident. (See the hypothesis “If the incentive scheme worked…” ) If you are interested in my personal beliefs I will say that I don’t have much information but I would be surprised if BP was internalizing all of the externalities at every stage of their decision making.
May 21, 2010 at 9:34 pm
Ryan
Yes, I think the “blame game” is what we call the doling out of public criticism.
In Japan, the blame game seems to play out differently (though if you just look at incentives, it is fundamentally the same). A company that produced an oil spill would probably apologize profusely regardless of whether it was an accident or not. Apologizing often includes cooperating with the relevant authority’s investigation. (It is amazing how cooperative businesses are in these events.) I get the sense that the Japanese public is very hard on public mistakes.
I think punishment can make sense to the extent the punishee can absorb it (hence changing incentives), but sometimes the company/person just gives up. In Japan prime ministers and cabinet members are quick to step down once they’ve made a big enough public mistake. Japan also has a very high suicide rate and I think that is part of it… people feel like they can never achieve public acceptance, so they give up.
I think the “giving up” point is a definite disconnect in the discipline scale and it makes discipline really difficult because the give-up point is different for every person and impossible to predict.
I guess public blame is more than just discipline though. It also includes punishment which sets a precedent for other companies.
Anyway, I think blame can be useful so long as it is still structuring incentives, but I think people can take it too far and then it just becomes plain hatred.
May 22, 2010 at 1:04 am
The Blame Game « Cheap Talk | Toys & Game-Review
[…] from: The Blame Game « Cheap Talk Published under Uncategorized | send this post Tags: fact, fault-instead, perennial, sense, […]
May 25, 2010 at 12:47 am
Robert Wiblin
If it’s easy to tell if it’s an accident or not, why not just punish them when it is not an accident. Then they still have a good reason to avoid non-accidents but we avoid punishment costs for accidents.
May 25, 2010 at 12:50 am
Should Australia punish Israel even if we agree with their actions? « Robert Wiblin
[…] In a similar analysis punishing BP for the oil spill in the Gulf of Mexico can be a good idea, even if it were an accident. […]
June 1, 2010 at 8:52 pm
Does Regret signal a Bad Decision? « Cheap Talk
[…] But there is another factor at work. It is impossible to determine BP’s probability assessment after the fact. They can always claim the chance of a disaster was low. There is no historical data against which to measure their assessment. All we are left with is the option to blame them even if their decision was perfect from an ex ante perspective. Blame involves saying them made a bad decision and holding them to account. This was the key element in Jeff’s earlier post on the Blame Game. […]