Why incentives work, and don’t work?

Recently an article in the NY Times was talking about a new school being assembled. The particular thing about this school is the salaries teachers will receive; around $125,000 a year “two and a half times as much as the national average for teacher salaries”.

The idea is to have the best teachers available and the means to do it is by offering a big incentive: 2.5 TIMES THE AVERAGE SALARY OF OTHER TEACHERS!

So, will this guarantee success? Who knows, but certainly they have managed to get VERY good teachers, who knows if this really will translate into top notch education.

That is precisely the point about incentives. Human systems are complex structures and when you create an incentive you disrupt the “natural order” of things and create sometimes unpredictable outcomes. Here is an example:

I believe the US society has a plethora of negative role models from professional sports (as exemplified in the List of professional sportspeople convicted of crimes). Some football, basketball and baseball players earn immense sums of money, they have big houses and luxurious cars, but they also have encounters with the law, they lack education, and some are bound to self destroy. It all traces back to incentives!

A kid from high school gets selected for a top school based on their athletic ability, not their level of education (first incentive). They have lower requirements from the school and eventually get drafted into a professional team. The first round pick in NFL for this year will get “$41.7 million in guarantees” for a six year contract. What is a 21 year old kid supposed to do with over $40 when he turns 27? Furthermore what kind of example is he setting for other kids who look up to him? Is he prepared to be a role model?

All this brings us back to the incentives on Greentech. Are they well designed? will we get the consequences we desire from these “disruptions”?

Greentech needs a hand to compete with existing technologies, energy sources and to change consumer behaviors. But we must be very wary of the potential outcomes of the incentives we propose.

Here are some responses from last week’s Are these environmental goals any good?:

“I am disappointed in the new standards. My VW Jetta 2000, gives about 30.x mpg during summer and 28.5+mpg during Winters in the metro Boston area. My Toyota Corolla 2007 gives about 34mpg.
If the SUVs and Trucks had say, 35mpg in 2016 and sedans to have a minimum of 50mpg, then that would have been a better goal to push for true innovation and energy use reductions by 2025. It would take atleast 8-9yrs. after the 2016 standard to have replaced a majority of vehicles on the road”

“After reading your blog, I have to admit that the "tough rules and regs" doesn't make a lot of sense. If we already have the technology for 50mpg, and Obama's only pushing for 35.5mpg, that takes away from the drive to go for better mpg than 35.5”

“I think like much policy that comes from Washington, it's flawed, but a step in the right direction”

“The best, and in my opinion, only effective way to promote alternate technologies is to ensure gasoline is priced in the range of $5.00 per gallon. That, in my opinion is the way to go. Legislating fuel economy standards may help, but think about it - for every new 35 or even 45 MPG car on the road - how many dozens are out there (think older cars or SUVs)at 20 MPG or less. Then lets think about diesels”

“If oil companies have their way it will become another reason for higher fuel and oil prices. In my view, the Feds have to take seriously the task of forcing automakers to switch over to hydrogen engines and other clean tech, along with forcing the grid energy suppliers to do the same. “

“What 'O' bases his assumptions on are Al Gore's global warming scandal of man-made C02, and other gas emmissions, so we started off wrong to begin with. With the banking crisis killing most other industries, esp the automotive industry, I believe this is a bad time to further destroy the industry”

“Give people something that is better and they will buy it. We can discuss the pros and cons of global warming and political agendas "until the cows come home" yet from where I sit on the other side of the world to you; I see a strategy that should galvanise the community to embrace change”

“I think they should be much tougher.... It is ridiculous that Americans continue to drive gas guzzling cars at 55 mph. The management of American car makers have failed to respond to the energy crisis, produce terrible cars and then want bail outs when they can't sell them”

“Considering the concept of sustainability, I think that 35.5 MPG is definitely high enough. Remember, this is CAFE, the average fuel economy for all of the vehicles a company manufactures, up to 10,000 lbs GVWR. So, while we may have the capability of manufacturing vehicles that will perform at 50+ MPG, there would still be a need for work trucks and vans that simply would not be useful with such a high fuel mileage.”

“I agree with you that the goals are unambitious but if the political pragmatism is that it is a modest goal that passes to law versus no change, then it is better to get the ball rolling.
By the way the US National Academy of Science has just published a free book that illustrates to the US what is happening in its own backyard. Copy available at http://tinyurl.com/qdfwyd”

“I predict that in 2 years we'll all be in agreement that it would have been better to just let Chrysler and GM go out of business”

“Obama so called tough rules are only decades too last due to the Big Three in the past always claiming excuses so that they did not have to upgrade CAFE mileage. They sure used lobbyists' a lot back then.”

“The new standard for cars efficiency by President Obama was long awaited and it is a great news. However, cars in many parts of the world (including China) are more efficient.”

Until next time: SHALOM!

Are these environmental goals any good?

On a recent press conference Obama announced a new standard for cars and trucks emissions (Obama to Toughen Rules on Emissions and Mileage). I wonder if this is the right move?

It was in college while studying Computer Simulation that I learned about retro-feeding cycles. These are cycles where several factors contribute to the growth (positive cycle) or shrinkage (negative cycle) of a specific variable. A retro-feeding cycle occurs for people who gain weight (that is why its so difficult to lose weight). As the person starts to eat more and more, he or she feels less and less energy to exercise (or even walk), also the stomach grows bigger and bigger providing for more space for food as well as preventing the person from feeling satisfied from eating. There are probably other physiological and psychological factors that also contribute to the weight gain of these specific person. Here is a graph that illustrates this retro-feeding cycle:

The environmental damage we are causing to planet earth is a very complex retro-feeding cycle that is further enlarged by other retro-feeding cycles. Population growth is a retro-feeding cycle  that contributes to the "environmental damage" cycle (the more people, the more growth), so is the "energy needs" retro-feeding cycle (more energy creates more progress and more need for additional energy).

So, is 35.5 miles per gallon by 2016 enough to change the negative retro-feeding cycle of carbon emissions?

The only way to neutralize a retro-feeding cycle is to create a counter-cycle that grows at equal or higher rate than the cycle we are trying to overcome.

I have read that when Kennedy proposed the lunar landing goal before the end of the decade (1960's), the US was very far from achieving this goal. Furthermore, Kennedy did not know if that goal was achievable at all!

In the world of Greentech, 35 MPG does not sound very impressing. There are many vehicles out there that can easily achieve that mileage today (click here to see some of them)! Are we selling ourselves short? If we have the technology to achieve 50MPG today, is setting 35MPG by 2016 going to help or to hinder the development of that technology?

So I ask you again: Are these environmental goals any good?

Comments from Why Greentech in Israel?:

First of all I want to share an article closely related to this post Israel's Clean Technology Pioneers

“Sami, exactly my sentiments. Israel also has it's own environmental challenges which desperately need Greentech solutions. In some ways Israel is an island and needs find new ways to harvest renewable energy, and recycle water and upcycle raw materials.”

“I agree with you in general terms, in specific I would ad that in some cases Israel needs some expertises to be imported for example in the windfarms development. But even here there are a lot of candidates ready to cooperate with companies from Israel provided they are invited”

“My only thought is on the following: "Because it’s easier and cheaper to continue with our current behaviors." It is easier, but not cheaper, to behave unsustainably. True, the greedy don't always pay now, but longer term the costs to society will be far higher to have ignored our planet's well-being”

“Why is that? Following the great success in the IT sector?
Do you believe "Silicon valleys" are the best place to start green start-ups?
Israel is where most of solar nergy concepts and ideas were born and rose up to become products and technologies. Do you believe that this background is another good reason for Israel being a good place to do greentech? “

Until next time: SHALOM!

Why Greentech in Israel?

I hereby declare that Greentech and Israel is a perfect match!

The more I put my head into it, the more I get convinced that Israel and Greentech are a great combination.

Let’s start with my assumptions:

Assumption #1: Greentech is the future. As I have explained in the past I strongly believe that Greentech is the Wave of the future (The Greentech Wave July-2008). Whereas you believe the planet is in need of help or you want to reduce your electric bill, the future lays in alternative energy sources, changes in waste management and improving our water supply.

Assumption #2: Greentech needs to push technology boundaries to substitute existing technologies and current behaviors. The world is still running of fossil fuels, waste (liquid and solid) keeps piling up and getting dumped in the wrong places and water sources are diminishing as water needs are rising. Why? Because it’s easier and cheaper to continue with our current behaviors. Therefore, greentech needs to “step it up” and start competing in cost and ease of use.

Therefore:

We need the fastest and best technology developers.

How about using the country that has the biggest concentration of scientist per capita? or The country that has delivered many of the technologies we use today, like the key drives and the messenger? The country that invests the most of its GDP in R&D? The country that has the most Nasdaq listed companies after the US?

The answer to all those questions: Israel

Last, but not least. Israel has the personality (as a country) to develop technology. People are natural entrepreneurs, scientist are “commercial application” oriented (as opposed to “pure research” oriented).

Here are some comments from the previous post “To Tree..”:

“I personally appreciate the yin and the yang of the tree hugging continuum. The extremists on both sides are the ones that come up with the ideas and questions no one has ever thought about before. Though it usually the more moderate parties that actually end up utilizing these new ideas and addressing the questions.”

“"The cost of solar power has to match the cost of coal power". - Coal is subsidized which is why it is so cheap. Wind and solar power are subsidized to a smaller extent through renewable energy credits purchased by individuals and some corporations, but do not receive the large amounts of funding given to coal.”

“Did you see the article about the Inuit village in western Alaska having to move inland because of flooding/rising seawater levels. I think there is ample empirical evidence that we are in the midst of climate change globally and that can be seen by studying the past and present. If we wait until the future...Nonetheless, I see a great global movement unlike anything we have seen in recent history”

“There are more trees in the US today than there were 100 years ago. The state of Texas has more trees than any state in the lower 48.”

“Saving the Planet...And it may be too late; I get your point! But Tree Huggers be damn! It is not "Global Warming" that is going to cause the destruction of life, It is the acidification of the Oceans. And, It needs to stop and reversed”

“Green tech for green tech's sake is a non-issue. The more pressing concern is overall US energy independence and green tech certainly has a place in that”

“Setting aside climate change skepticism (and there are reasonable physical scientists and engineers who are skeptical and have essentially been shouted down), it is too limiting to think only of energy production. We need to look at all aspects of human activity. For instance, intensive farming has done more environmental damage than all industry and transportation. Modern diets consisting of more meat result in significantly higher consumption of energy, water and other natural resources; and all that live stock means more green house gases”

“It is very difficult to tell someone he can't have a car, a refrigerator or an air conditioner because of added pollution and climate concerns. Specially when the "developed" part of our planet consumes most of the energy produced and generates most of the pollution”