A basic principle of economics says that if you reward a behavior, you will get more of it.

Unfortunately, government programs frequently have perverse incentives, which reward behaviors and outcomes which no one desires. Education is an example. If a private school does a poor job of educating its students, parents will remove their children and the school suffers financially, but if a public school performs poorly, it is likely to receive a budget increase in order to “fix the problem.”

In government space programs, managers who overrun their budgets can expect to receive additional funding. Managers who come in under budget may be targeted for future cuts. Their success proves they “don’t need” as much money. The system rewards managerial failure and punishes success.

This dysfunctional pattern passes for normal. When there’s a deviation, managers actually get upset.

In 2011, NASA associate administrator Dr. Edward Weiler resigned over what he called “irrational” cuts to NASA’s Mars science program. The Planetary Society has protested the proposed cuts, as have a number of Congressmen.

The protestors fail to mention the reason for the proposed cuts, which are an attempt by the Office of Management and Budget regain control of a space science budget that’s badly out of control. This situation was caused by massive overruns in projects such as the James Webb Space Telescope and the Mars Science Laboratory – both projects managed by Dr. Weiler.

Dr. Alan Stern, who preceeded Weiler as NASA associate administrator for space science, has described such overruns as “a cancer overtaking the space agency.” Dr. Stern warned that, “This decision to go forward with the [Mars Science Laboratory] was made even though it has tripled in cost since its inception, it is behind schedule, there is no firm estimate of the final cost, and NASA hasn’t disclosed the collateral damage inflicted on other programs and activities that depend on NASA’s limited science budget.”

Stern was forced to resign from NASA when he attempted to get spiraling budget costs under control.

Even more frightening are perverse incentives in manned programs. Commentators have said that NASA engineers are afraid to take risks because Congress punishes NASA every time it loses an astronaut. In fact, that isn’t true at all. The late, legendary aerospace engineer Max Hunter, father of the Delta rocket and the Delta Clipper Experimental, once remarked that every time NASA lost an astronaut, the agency has received a substantial budget increase as a result. At the same time, no one is fired. Max Hunter did not live long enough to see the Columbia accident, but that pattern still holds true.

By contrast, a private transportation operator that loses a customer (or even an employee) in an accident will suffer an economic loss. The company may even go out of business as a result. They do not have the same perverse incentives that NASA does. Yet, ironically, we still hear the argument that private companies can’t be trusted to exercise the same degree of care which NASA does. We hear that argument from some members of Congress – generally lawyers, who have no operational or business experience but great confidence in their own ability to regulate safety.

According to the naysayers, private enterprise will inevitably “cut corners” to save money. In the real world, however, you don’t save money by sacrificing safety. That’s a misconception – a “false economy.” Accidents and mishaps cost money. Again quoting Max Hunter, “Almost anything you do to improve reliability and safety will also reduce costs, and vice versa.”

Southwest Airlines has the lowest ticket prices in the industry, not because they have the worst maintenance program but because they have the best. If they didn’t maintain their airplanes to high standards, they would never be able to maintain the high operational tempo they are famous for. Revenues would decrease, and costs would go up. We need a Southwest Airlines for space.

NASA’s human spaceflight program is run with a high degree of professionalism, and no one believes that NASA managers would deliberately endanger the lives of astronauts – despite the perverse incentive Congress has given them to do so. If we can trust government employees to act ethically, even when it’s not in their best economic interests, we can certainly trust private companies to act ethically when their economic interests require it.

Written by Astro1 on August 25th, 2012 , Space Policy and Management

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    Gary Warburton commented

    So often people expect direct and precise answers to these questions when no precise answer is possible. Let me dispell some myths. Private companies are not the seat of innovation they only accomodate innovation. Companies are more interested in profits and share holders` wishes to make profits than innovation. Innovations come from individuals, people with dreams and ideas, -diversity. It is only when people with dreams either have the money to make their dreams come true or they befriend someone with money who helps them to accomplish their dreams that dreams become reality. I think that it is possible to increase the amount innovations we see through giving grants to universities and offering financial incentives to creative indivduals but it is not a guarantee.

    August 27, 2012 at 12:00 am