Sam Harris has a great piece on perverse incentives on his blog. Just about everything he writes is worth reading. He begins by showing an extreme example of bad incentive structure: prison. He shows how even if someone wanted to peacefully serve his time in prison, the system forces him to act violently in order to survive. He then pulls back and writes about incentives more generally:
A prison is perhaps the easiest place to see the power of bad incentives. And yet in many other places in our society, we find otherwise normal men and women caught in the same trap and busily making life for everyone much less good than it could be. Elected officials ignore long-term problems because they must pander to the short-term interests of voters. People working for insurance companies rely on technicalities to deny desperately ill patients the care they need. CEOs and investment bankers run extraordinary risks—both for their businesses and for the economy as a whole—because they reap the rewards of success without suffering the penalties of failure. Lawyers continue to prosecute people they know to be innocent (and defend those they know to be guilty) because their careers depend upon winning cases. Our government fights a war on drugs that creates the very problem of black market profits and violence that it pretends to solve….
We need systems that are wiser than we are. We need institutions and cultural norms that make us better than we tend to be. It seems to me that the greatest challenge we now face is to build them.