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Child Care Centre – An Analysis of How Incentives Work on the Human Mind

Understanding the concept of incentives, positive and negative, and how they impact
the behaviour of people is a core aspect of economics. In fact, economists love to experiment
with incentives and identify different measures that can motivate and demotivate a person
from doing an action or from abstaining from it. The power of incentive is such that
economists believe that with the right incentive, any person can be compelled to do any task.
Incentives can cause tremendous action, inaction, or opposition merely based on the quantity
and quality of the incentive. Every incentive has three aspects affecting it: economic, social
and moral.
The case of the childcare centres in Israel will help one understand the impact of
incentives and how a wrongly conceptualised one can severely affect the very purpose of the
A study of childcare centres in Israel provided statistics that the parents who came
later to collect their children were on an average of eight per centre per week. This was an
alarming statistic for the centres, and they had to spend extra money on holding back staff
and paying them for overtime services. A few economists decided to try giving a negative
incentive by imposing a nominal $3 fine on parents coming late by more than 10 minutes.
This was imposed in 20 childcare centres in Israel. The management and the economists
believed that this would deter parents from coming late to collect their child. To their utter
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dismay, within a couple of weeks of imposing the penalty, the number of parents who came
late increased to 20 per week per centre, showing an astounding increase of 150 per cent.
One major factor that one can identify that led to such a drastic increase is the low penalty.
The penalty for the whole month totalled to $60, which was about 16 per cent of the total
monthly service fee per child. From the parent’s perspective, for an additional 16 per cent of
monthly fee, he/she could come at his/her own convenience and collect the child. Since such
a penalty was being levied by the childcare centre, it became an additional responsibility for
the centre to provide the best amenities for the child until the parent turned up. It further
alleviated the moral conflict within the parent, when he/she turned up late, as now he/she
could come late and be relieved of the moral binding to come on time with the penalty.
A similar scenario can be applied to students who were asked to pay a nominal fee for
low attendance. Colleges perceived that by introducing a low penalty for every day of
attendance below the stipulated percentage, students would come in more regularly. To their
utter dismay, with the introduction of the penalty, the percentage of students who fell below
the required minimum attendance increased significantly, as they were aware that by paying a
nominal penalty, they could get away with a few more holidays in the year to enjoy.
On the contrary, in the absence of the penalty, the parents had at least a moral
obligation to come on time and collect their children. In case a much severe punishment is to
be imposed, like a $100 a day, the number of erring parents would significantly decrease.
However, that would increase the animosity between the parents and the childcare centre
management, which could even lead parents to transferring their children to a far less
punishing centre. If the childcare centres of the entire region imposed a high penalty for late
parents, there is a strong possibility that one of the parents might open his/her own childcare
centre and compete with the existing one.

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