A recent book describes how incentives send signals that shape a story. These signals and the story they tell are just as important as the characteristics of the incentive itself in determining whether the incentive will have the expected effect. 

In Mixed Signals. How Incentives Really Work, author Uri Gneezy explains, “The holy grail in designing incentives is to make the signals sent by incentives work and, at the same time, also to reinforce self- and social-signaling in the desired direction.” 

This book does not address economic development incentives. Instead, it focuses on internal corporate incentives and behavioral incentives. Nevertheless, there are some intriguing takeaways for economic development professionals and policy makers. 

For example, the author notes that signals inform others about values, abilities and preferences. Using economic or community or workforce development incentives to convey a community’s values, contributions, and expectations is critical. The structure and messaging of, say, a redevelopment incentive might emphasize highest and best use (which usually means biggest return to the developer) or it might focus on meeting specific needs (such as providing community amenities and services) in a neighborhood. Similar sounding incentives may send very different signals.

Signals also affect how people feel about themselves (self-signaling) and how others perceive them (social-signaling). Needless to say, people want to feel good about themselves. Incentives that indicate that people or companies are “doing the right thing” or, for economic development, creating benefits for the community can be powerful. Of course, it depends on the target audience. If the recipient is primarily recognized and praised for financial outcomes, community benefits become less significant.

The author acknowledges that incentivizing behavior when performance is multifaceted is difficult. This is typically the case in economic development in which we are trying to achieve multiple goals. It is easiest to choose one metric (such as number of jobs) but in reality additional goals may relate to greater pay and benefits, career growth potential, who is getting the job, and where the job is. This is one of the reasons it is so challenging to design an incentive that is perceived as effective. 

But careful attention to incentive design and implementation can make a world of difference, with “small differences in incentive programs’ framing and structure” having a great impact on effectiveness. We have seen this repeatedly in our work. Programs that at first glance appear the same are in fact quite dissimilar when examining structure, messaging, and effectiveness.

“Incentives send a signal, and your objective is to make sure this signal is aligned with your goals.” 

Mixed Signals, p. 271

For more information, please see Mixed Signals. How Incentives Really Work by Uri Gneezy and published by Yale University Press.