Life is complicated. People are complicated. Decisions can be made and policies adopted, with the best of intentions, only to fail in (predictably) unpredictable ways.
This doesn’t consign humanity to the status quo, of course – but it does suggest that big changes need to be made with some humility and plenty of ongoing monitoring.
Here’s a collection of studies from the Kellogg School that demonstrate how good intentions can go awry.
Tighter environmental regulations may encourage cheating
Tightening emission standards certainly seems like a good way to reduce emissions. But like The infamous Volkswagen emissions scandal is revealedthis is not always the case, particularly when there is no strong enforcement.
In 2015, Volkswagen admitted it had installed illegal software in 11 million vehicles, allowing vehicles to cheat emissions tests. When Sunil Chopra and then-PhD student Kejia Hu (now at Vanderbilt) investigated why, they found that strict standards that are expensive to meet, combined with tight competition, can drastically increase the chances of misconduct among automakers.
The researchers built a series of mathematical models that incorporated data on actual emissions, the stringency of standards, vehicle characteristics, prices and the intensity of competition. The models revealed that for every 1 percent that standards were tightened, the likelihood of misconduct increased by 2 percent.
In the wake of the scandal, European Union policymakers chose to do so double the acceptable emissions limit – a move that won them a lot of criticism. But when Chopra and Hu ran their model again with these new limits, they found that automakers are likely to put more effort into actually meeting these lower levels, reducing misbehavior by 9-11 percent in the short term.
The result; Sometimes less is more, at least unless you have a good way to ensure compliance. “There’s no point in tightening rules if you can’t improve monitoring and enforcement,” says Chopra.
Helping companies survive the recession can hurt the economy in the long run
In the face of a recession, central governments quickly implement policies that increase the supply of credit and encourage lending to keep their economies afloat and their citizens employed.
But if the incentive flows to the wrong companies, it actually can wound economy of a country in the long run. That’s the conclusion of an analysis by Jacopo Ponticelli, who, along with his colleagues, investigated China’s response to the Great Depression.
Between 2000 and 2008, the analysis revealed, capital was reallocated from older, state-owned enterprises to more dynamic, private firms, which many researchers believe contributed to China’s growth during this period. But after the stimulus, “you see a reversal of this process,” Ponticelli says. “You see capital and labor flowing faster to less productive firms.”
While the researchers did not specifically examine whether the Chinese economy suffered as a result of this reversal, economists agree that the systematic misallocation of loans can crowd out productive firms in the long run. As such, Ponticelli sees the study as a cautionary tale for other countries considering using an influx of money to prop up a nation’s economy during a recession.
While there is no general formula for how governments should respond to economic crises, Ponticelli suspects that it may be better to introduce stimulus programs more gradually.
Banning e-cigarette ads may harm health outcomes
Cigarette ads have been banned from TV since the 1970s—and in 2019, the FDA extended the ban in e-cigarettes, largely to prevent e-cigarette use by minors. But an analysis by Kellogg’s Anna Tuchman before the ban was extended suggests a potential downside. Specifically, Tuchman found that an increase in the number of television ads for e-cigarettes was associated with a decline in sales of traditional cigarettes, perhaps because smokers were substituting the electronic product for the traditional one.
A 10 percent increase in e-cigarette ads was associated with a 0.8 percent increase in e-cigarette sales — but also a 0.2 percent decrease in traditional cigarette sales. Because the e-cigarette market is much smaller than the traditional cigarette market, overall nicotine consumption has decreased.
Tuchman’s research suggests that as policymakers consider well-intentioned efforts to protect youth from the harms of tobacco, they should carefully balance the value of preventing youth from starting and helping smokers.
Paying employees too well can attract the wrong kinds of candidates
Conventional wisdom says that companies get what they pay for. If they want to attract the best talent, they had better advertise high salaries.
But a study by Kellogg’s Erika Deserranno suggests that financial incentives do more than just entice top candidates—they can also send potential employees a message about who’s right for a given position. And sometimes that signal is completely wrong.
Deserranno worked with the large NGO BRAC Uganda to monitor the behavior of several thousand potential job applicants for new health worker positions. Her data suggests that when jobs are advertised as high-paying, they actually attract fewer applicants who are committed to the organization’s social mission.
When the job was advertised as high paying, potential applicants were 18% more likely to believe that the primary purpose of the job was to make money rather than serve the community. Additionally, highlighting the financial incentives of the job (by advertising medium or high compensation levels) attracted more applicants with a vested interest in earning money. These people were 40 to 50 percent more likely to apply for the job than when it was advertised as low-paying.
Meanwhile, people with prior experience as a health volunteer or who described themselves as valuing the job’s community impact over its earning potential were 20 percent less likely to apply when the job was advertised as high-paying.
“If people think they will earn more, they think work will involve more time in income-generating activities than in social activities,” explains Deserranno. This has a ‘crowding out’ effect on socially motivated applicants, who are discouraged from applying. “That’s problematic, because I’ve found that these social people are actually the ones who perform better at work and stay a lot longer.”
Sending your child to the best possible school can backfire
So far, we have focused on policies implemented by governments or large NGOs. But the law of unintended consequences also applies to individuals. Take a study from Kellogg’s Jorg Spenkuch. He and his colleagues find that, for children, moving to a “better” school or classroom has some pretty significant downsides.
Specifically, across studies, researchers find that moving to a higher-achieving environment can significantly increase the risk of academic and behavioral challenges—indeed, the very kinds of problems parents were trying to avoid in the old school. Students may end up performing worse on standardized tests and misbehaving in school more than they otherwise would. All else being equal, children in a class with smarter peers are more likely to have these problems than if they are surrounded by less skilled students.
That’s because “relative position matters to students’ choices,” says Spenkuch. Students who have fallen in the academic rankings may struggle because it’s not as fun to work on an assignment when you’re behind your peers. “It can be inherently more enjoyable to do something you’re good at,” he says. “And ‘good’ is defined in relation to the people you observe.”
The researchers aren’t saying that high-achieving students shouldn’t move to better schools. With the positive changes that come from such a move, such as better teachers or newer facilities, “it might be a good idea at the end of the day,” Spenkuch says. However, the research suggests that parents and teachers should keep in mind that the transition will also bring some challenges.
