Is there an economic theory about monetary incentives doing more harm than good as economic utility becomes harder to determine/quantify?
I was reading a thread about medical research, and it occurred to me that it's getting more and more difficult to determine the effectiveness of many health care products. Then I wondered if attaching monetary incentives to create new medical products creates an incentive to lie that wouldn't exist otherwise, thus preventing better (cheaper or existing) medicine from reaching more people.
There are always incentives to cheat, but when the products are simple (like an orange or an mp3 player) the quality and utility is more obvious to everyone. As products get more complicated (medicine, financial derivatives, insurance, etc) the rules of economics would sort of break down, wouldn't they? Especially when the economic utility of something can only be determined after a long period of time?
I poked around for a while, and I found a stub
about supplier induced demand, but I'm not sure if that's what I'm looking for. It seems similar to arguments about supplier indifference to use value
, but I was hoping for something more succinct.