For example, giving the most foreign aid to the poorest countries gives Third World leaders incentives to keep their subjects in poverty and therefore acquire even more aid. Alternatively, giving aid conditional on political or economic reforms doesn't work; when poor governments become increasingly corrupt, donors don't have the heart to stop giving aid. And on and on.
That got me to thinking: Do we try to improve the worst sports teams in the same incentive-perverting way that we're trying to help the poorest countries?
Professional sports leagues award draft picks in the reverse order of the teams' standings the previous year (there are some technicalities, such as the NBA's draft lottery and baseball's draft pick compensation for lost free agents, but the point remains the same). The idea is that the worst teams get first choice at the top rookies, thus enabling them to become competitive in the near future.
If the reverse-order draft did nothing to change teams' behavior, it would be an admirable policy. But statistical research has suggested that teams might be losing on purpose to improve their draft standings. For instance, each year the worst baseball teams trade away many of their best players in July and give ample big-league playing time to unpolished young prospects who otherwise would be kept in the minors.
I wonder if the Washington Nationals wish they had won a few more games during their horrid 2008 campaign. Because they didn't, and therefore finished dead last, they were awarded the No. 1 pick the next year and thus the rights to rookie phenom Stephen Strasburg. And all the sellouts, merchandise sales, and national media exposure that came with him. I'm sure they're devastated.
What did the Washington Wizards do this past year to deserve the No. 1 pick in the NBA Draft? From The Washington Post:
Grunfeld sat in the back room to watch the Ping-Pong balls bounce in favor of a franchise that finished 26-56 last season, enduring a trying campaign. Abe Pollin died of a rare brain disease in November; star point guard Gilbert Arenas was suspended for the final 50 games and received a felony gun conviction after bringing guns to the locker room in a dispute with teammate Javaris Crittenton; and Grunfeld detonated the roster with a flurry of trades at the deadline that shipped out former all-stars Antawn Jamison and Caron Butler, as well as Brendan Haywood and DeShawn Stevenson.
Setting aside the death of team owner Pollin, none of the above is behavior that the NBA or its fans want to encourage. Yet the team was rewarded with the No. 1 pick.
So while corrupt leaders end up with more foreign aid, incompetent team owners or upper management end up with top draft picks. How could these systems be improved?
In his book, Easterly suggests that the most aid should go to countries that have implemented the most economic reforms, not the ones who promise to implement them, thus making their commitment to improve credible.
In that spirit, why not give the highest draft picks to the best teams, rewarding them for winning? Or, for a less-extreme solution, why not make the draft order random? Either approach would remove the incentive to lose.
Of course, bad teams would suffer. After the losses began to mount, maybe the teams' management would be replaced by more competent personnel. Maybe teams that can't draw many fans will improve their on-field product, move to more lucrative markets, or go bankrupt.
Are these outcomes really that bad?