#606 Incentives are messing things up

Municipal accountability

You Get What You Reward: Incentives in Municipal Government

By Peter Karwacki

Every rule, budget line and performance target tells people what to do. City hall is no different from a hockey team or a call centre: people respond to what is rewarded, what is punished and what is ignored. The trouble is that those signals rarely match what residents actually want.

Gifts, cash and the signal underneath

A thank-you card says “I noticed.” Cash says “here is the price.” Mix the two and goodwill can vanish. In a well-known Israeli daycare study, a small fine for late pickups increased lateness, because guilt turned into a fee. Cities run on this same distinction. Public credit and recognition can motivate staff in ways a small bonus cannot, while a gift to a decision-maker can quietly start an obligation, which is why gift limits exist.

Every incentive carries three things at once: a payoff, a signal about what is valued, and a message about the relationship. Most failures come from designing only the first.

Who is the boss?

In theory, the taxpayer. In practice, the cost of a bad deal is spread thinly across everyone, while the benefit lands on a few parties who watch closely: developers, vendors, associations. Each resident loses a little and has no reason to follow the file. The people who gain a lot attend every meeting. Low turnout and thin local media coverage widen that gap.

Intended versus unintended consequences

Here is how common municipal incentives play out when a rational person sits in the seat.

Incentive	Intended	Uninten ded
Four-year election cycle	IntendedAccountability to voters	UnintendedRibbon-cutting beats maintenance; backlog grows for the next council
Lowest compliant bid	IntendedFair, cheapest price for taxpayers	UnintendedLow-balling, then change orders to recover the margin
Milestone-based payment	IntendedKeeps projects on schedule	UnintendedMilestones get hit; working systems do not always follow
Fixed public-sector salary	IntendedStability and independence	UnintendedLittle reward for savings, heavy cost for a failed pilot; safe beats smart
Annual budget, use it or lose it	Intended Spending discipline	UnintendedYear-e nd spending sprees; last year’s spending sets next year’s budget
Response-time targets	IntendedFaster service for residents	UnintendedQuick acknowledgments and closed tickets instead of real fixes
Public consultation	IntendedResident voice in decisions	UnintendedProcess counts as success even when no decision changes
Donor and sector relationships	IntendedInformed, connected representatives	UnintendedSincere self-deception: the sector’s preference starts to look like the public’s

Left to right: what the rule was designed to do, and what it tends to reward in practice.

Governmen ts measure activity because outcomes are hard to measure. “Takin’ care of business” and “working at doing nothing all day” can look identical on a dashboard.

Four ideas to short-circuit the structure

Better people help, but structure outlasts people. These four changes redirect the incentives themselves.

Idea 1

Yardstick comparison, with quality attached

Publish comparable cost and performance data across peer cities, and pair every speed or volume metric with a quality metric, such as reopen rates alongside closure times. Residents cannot judge a cost in isolation, but they can judge it against peers.

Short-circuits: response targets that reward acknowledgment, and the information gap that favours insiders.

Idea 2

Protected failure

Fund small, time-limited pilots with evaluation criteria agreed in advance. A pilot that fails then produces a result, not a scandal. Innovation only happens where the safe path stops paying better than the smart one.

Short-circuits: the asymmetry that rewards staff for playing it safe.

Idea 3

Lifecycle costing at approval

Require every capital proposal to show maintenance and replacement costs over the asset’s life, not just the build cost, and make carry-over of unspent maintenance funds the default. The council that approves the ribbon-cutting must see the bill that follows it.

Short-circuits: deferred maintenance and use-it-or-lose-it spending.

Idea 4

Independent review where conflicts concentrate

Land use, procurement and contract changes are where concentrated benefits meet diffuse costs. Require independent review of change orders above a set threshold, and pair disclosure with recusal instead of letting disclosure stand in for it. Introspection is a weak control; structure is a strong one.

Short-circuits: low-ball bids recovered through change orders, and self-deception in conflicted judgment.

A test for any municipal decision: what behaviour do the rules reward, who is watching, and what would a rational person in that seat do?