Came across an excellent one liner by Sinclair Davidson:

human behaviour doesn’t suddenly improve simply because you’re involved in a non-profit or in politics. Mechanisms to align the interests of the leadership (elected officials broadly defined) and the members (be they voters, unionists or shareholders) must exist and must be enforced.

In brief, if you DON'T align incentives properly (as has happened in India's governance system) expect the worst outcomes for all.

BFN is ALL about incentives and about aligning them properly.

A typical example:

A system of performance bonuses for all MPs and MLAs will be introduced:

• For every 1 per cent increase in per capita GDP growth beyond 5 per cent per annum, all our representatives will get a one-off 5 per cent bonus.
• For every 1 per cent permanent reduction – defined as a reduction sustained for two years – in the number of people below the poverty line, MPs and MLAs will get a permanent 1 per cent increase in their base salary. Once the negative income tax system is fully established, the entire reduction in poverty will be incorporated permanently into the base salary.
• For every ten ranks that India rises on a sustained basis of two years in Transparency International rankings, there will be a 5 per cent one-off bonus.
• There will be a permanent 20 per cent increase on base salary upon India’s becoming the world’s least corrupt country for two years in a row.

The sum of these bonuses will be limited to a total of 50 per cent of the base salary in any given year. [Source]

I notice that at least some otherwise smart people find it impossible to understand this simple concept. If you know of a simple way to explain the idea of incentives to such people, please let me know!

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