Saturday, December 22, 2007

Yes Virginia, there is an incentive system

The biggest open question surrounding the economics of Christmas is this: is the creation of Santa Clause an effective incentive system?

So my understanding of the deal is this: if a child is good throughout the year, Santa Clause comes on Christmas Eve and leaves presents for them in the form of toys and candy. If not, Santa still visits and brings coal, sticks or clothes. To determine this, Santa keeps a list throughout the year to see who is 'watching out' or 'crying.'

If a child buys into this, this would seem to be a potentially powerful incentive system for keeping them well-behaved. What is more, it removes the critical 'subjective performance evaluation' issue from the hands of the parents to the hands of a Northern dwelling, large, usually jolly manager of elves dressed in warm red clothes. Unlike parents, Santa has an incentive to keep the system going whereas a parent's claim that some behaviour would ruin Christmas would not be nearly as credible (see Donald Cox's case study #3).

But what is the evidence that this works as an incentive system? For starters, children around the age of 8 discover the truth and so it must break down at that point even if they keep their parents wondering about what they really believe. But what about before then, does it work to keep children well-behaved?

Now an obvious path to compare this to would be to compare Santa cultures with Santa-free ones. But that is imperfect because they will substitute their own incentive systems into the mix. Although, when it comes down to it, the Jewish elevation of stature of Chanukah is surely a testament to the incentive power of Santa. Sadly, for Jews, the only holiday that occurred around December involved a minor miracle whereby an oil lamp a couple of thousand years ago lasted a little longer than expected. That said, by elevating the status of Chanukah one can safely say that the communication of its true meaning has only been enhanced beyond some ritual and rather unmiraculous candle burning.

What we really need is a random experiment? Some group of families needs to be assigned to miss out on Santa visiting and this has to be communicated at the beginning of the year. Then the behaviour of their children can be assessed and compared with those operating under the status quo.

My guess is that we may find out that the whole deal doesn't do much for incentives. For starters, you can just ask my children who are forced to stick with the true meaning of Chanukah and, if they are lucky, each get one little present each (worth less than $1) for the 8 nights. Total budget for us: $24 (not including the candles). They seem to do pretty well throughout the year. Then again, we are probably substituting other incentives into the mix.