Those four words, people respond to incentives , capture the essence of much of economics.
Here is another example that my son (Adam Smith Palmer) and his friend explained to me over the weekend: Air conditioner theft.
When the price of copper sky-rocketed, it became pecuniarily rewarding for people to find old copper and recycle it.
Not all of the old copper they found was old, though. Enterprising thieves also found that they could steal air conditioners (not the window type, so much, but the big units that sit on a concrete pad outside a house) and sell the valuable copper inside the units. These thefts in Houston and the surrounding area could occur outside any home, but the most vulnerable places were in new developments where the houses weren't quite completed and not many people were living in the houses.
Air conditioning units contain a large amount of valuable copper that well-trained thieves can strip from your system within minutes to sell as scrap metal. As a homeowner, an air conditioning theft can be devastating as it leaves you uncomfortable and at a loss of your expensive investment.
And of course, since people respond to incentives, homeowners have worked out ways to deter the thefts:
- Air conditioning cages that are locked onto the concrete pad.
- Locating air conditioners behind a locked fence.
- Installing an air conditioner alarm.
Or home owners have let potential thieves know that there is a high probability they will be caught by:
- Using motion-sensitive lights and cameras.
- Attaching a GPS-trackable device to the air conditioner.
Also, in Houston, the recyclers have been enlisted by law-enforcement agencies not to buy new copper tubing from air conditioners and to make sure they have a documented provenance for the copper.
As many of us in economic analysis of law like to point out, the theft itself is "just" a redistribution of wealth. The inefficiency comes when people use scarce resources to carry out the thefts and when people use scarce resources to deter the thefts.