Financial Incentives and Disincentives

What is this Tool?

  • Incentives, such as discounts and bottle deposits that entice people by rewarding them for taking action.
  • Disincentives, such as fines for over-watering or generating too much garbage that discourage people from taking actions you want them to avoid.
  • A key element of social learning theory
    (http://rex.nci.nih.gov/NCI_Pub_Interface/Theory_at_glance/HOME.html )

    Of course there are often other, non-financial incentives or disincentives. These are discussed in the Tool, Overcoming Specific Barriers.

Why Would You Use It?

  • Because incentives and disincentives are powerful tools for encouraging or discouraging behaviours

When Would You Use It?

Consider using financial incentives when all of the following three criteria are met:

  • People are unlikely to take the action without the incentive.
  • You are trying to stimulate trial of a product or action and evidence indicates that people will probably continue after the trial period without the incentive, or you are able to continue providing the incentive indefinitely.
  • The anticipated benefit justifies the investment.

Disincentives can be used at any time provided that they are acceptable to the community.

How Would You Use It?

 
1. Determine through research how motivated your community would be to do the action as desired without resorting to financial incentives. Proceed only if the incentive is required.

Examples

Green$aver's EnerGuide audits were detailed and focused enough that customers could see their value and were willing to pay for them. However, GreenSaver's market surveys found that homeowners would not pay more than $150 for the assessments. The actual cost of providing each assessment was at least $300. Half the cost of the assessments was subsidized by Natural Resources Canadas sponsorship and half was paid by customers.

JEEP wanted people to purchase and install energy saving devices. For some devices, like power saver cords for car block heaters, this was a "once only" purchase; for other devices, like compact fluorescent light bulbs, the aim was to induce trial and continued purchase. Research had revealed that, in the short term, residents were unlikely to make the purchases without some sort of incentive.

The City of Portland found that although the combined power of all tools was most effective, the single most effective was implementing direct financial incentives. People were much more willing to scrap their lawn mowers if they knew they would receive a $50 coupon for an electric mower or push mower.

The Better Buildings Partnership developed self-sustaining financial incentives. Interest free loans and/or loan repayment insurance were offered to finance building retrofits leading to guaranteed utility savings. A portion of the savings went back to the participants, and a portion went to the Partnership to finance future loans and programs.

Your Program

For instructions on how to do this research refer to Getting Informed.

Are financial incentives / disincentives necessary?
Login to Save Plans for Tools of Change Yes Login to Save Plans for Tools of Change No

 
2. Make sure that the incentive / disincentive is large enough to be taken seriously.

Examples

North Shore Recyling’s Compost Coaching Program program was funded by tipping fee savings due to reduced curbside collection tonnages.

To support its ongoing work, Haliburton Communities in Action ensured that in each infrastructure grant application it submitted there was a contribution towards the salary of its part-time project coordinator.

Stockholm?'s Congestion Pricing initiative provided a disincentive (charge) for using single occupant vehicles within the town centre during peak congestion times. It demonstrated that congestion pricing ? an option which was initially resisted in Stockholm and almost universally avoided elsewhere? could in fact be popular, work well, and generate significant additional funds for municipalities

BIXI’s bike-share users purchased a membership or could choose to purchase 1-day or 3-day access at a docking station.

Tip: When people are already sufficiently motivated to engage in an activity, the use of financial incentives will likely undermine their internal motivation. Furthermore, should the incentives be removed at some later time it is possible that the intrinsic motivation will not return.

Tip: If a financial incentive is not required, focus on the Tools Norm Appeals, Building Motivation Over Time and Obtaining a Commitment.

Your Program

What incentives / disincentives have worked elsewhere? What would work in your situation?

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3. Ensure that the incentive is noticeable.

Examples

Resource Alert for Canada and the U.S.A.: Considering offering sales-persons incentives, to encourage them to remind buyers of the benefits of energy-efficient appliances? Canada's EnerGuide for Household Appliances Program, and the US Energy Star Program can help you identify eligible (more energy efficient) appliances.

JEEP went door to door to communicate the incentives to residents.

Sidney Township (Quinte Regional Recycling) provided residents with 52 "free" bag tags, which caught their attention. Only tagged bags were collected.

The City of Portland advertised and promoted its lawnmower buyback program through "stuffers", which were advertisements included in Portland General Electric's bills to residents. In addition, it used television public service announcements to promote the program, as well as posters in local stores, print advertisements, weekend promotions at the home renovation store Home Depot and local neighborhood events.

Your Program

How will you ensure that people notice your incentives?

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4. Design the incentive / disincentive to discourage evasion.

Examples

JEEP had to place a limit of eight reduced-price, compact fluorescent bulbs per home and five per apartment after the first two days of the program. It had become apparent that people were buying large quantities as gifts for people outside of Jasper. A limit of two indoor and two outdoor lighting timers per residence was also set.

Sidney Township (Quinte Regional Recycling) provided residents with 52 "free" bag tags, which caught their attention. Only tagged bags were collected.

Resource Alert for Canada and the U.S.A.: Considering offering consumer and/or sales-person incentive program? Canadas EnerGuide for Household Appliances Program, and the US Energy Star Program can help you identify eligible (more energy efficient) appliances.

A program that promoted compact fluorescent lights through manufacturers rebates, required the manufacturers to commit to selling 30% of their inventory allocated for rebate within three weeks, 60% in eight weeks and 100% in twelve weeks. If a manufacturer failed to meet the deadlines or performance criteria, its rebates were reassigned to other manufacturers.

Your Program

List the ways people might be able to evade your incentive / disincentive.

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Now go back and note how you can discourage each evasion.

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