When those making the decisions don't bear the consequences, whose interests are really being served?
Some time ago, I wrote about perverse incentives — situations in which individuals or organisations, acting quite rationally in their own interests, produce outcomes that are contrary to the interests of society as a whole.
It is one of the most important, and least appreciated, explanations for why institutions so often fail to deliver what they were created to achieve.
A recent article in TrialSite News, Was the COVID-19 Pandemic a Trojan Horse?, by Dr Ronald N. Kostoff, provides a fascinating case study.
The article asks a provocative question: did the extraordinary measures introduced during the pandemic serve purposes beyond protecting public health?
My interest is in a somewhat different question.
What happens when the people making decisions benefit from those decisions, while the costs are borne by someone else?
The Problem with Good Intentions
Consider a public health official confronting a new and potentially dangerous virus.
If the official recommends severe restrictions and those restrictions later prove excessive, the consequences are largely borne by businesses, workers, schoolchildren and families.
But if the official recommends restraint and the disease spreads disastrously, the professional and political consequences could be devastating.
Which course is the safer one for the official?
The answer is obvious. And therein lies the problem.
The decision that minimises personal or institutional risk is not necessarily the decision that produces the best outcome for society.
This does not require dishonesty, corruption or even bad intentions. It requires only ordinary human behaviour responding to a particular set of incentives.
During COVID-19, this asymmetry was particularly pronounced. The consequences of doing too little were immediate and visible. Many of the consequences of doing too much — educational losses, business failures, delayed medical treatment, psychological distress and social isolation — emerged more slowly.
The incentives favoured caution, even when caution imposed enormous costs on others.
Follow the Benefits
Kostoff's article examines the extraordinary redistribution of economic activity, institutional power and financial resources during the pandemic.
Consider some of the outcomes.
Large businesses versus small businesses. While many small shops and restaurants were forced to close, large retailers and online businesses were often able to continue operating. Some emerged with stronger market positions, while smaller competitors disappeared.
Pharmaceutical companies. Vaccine manufacturers benefited from substantial government funding, enormous purchasing commitments, accelerated regulatory processes and significant liability protections. Some of these arrangements may have been justified by the emergency, but they also created powerful commercial incentives.
Technology companies. Lockdowns accelerated the shift to online shopping, remote working, digital education and electronic communication. Companies already dominating these markets benefited enormously.
Government agencies. Emergency powers allowed executives and administrators to make decisions that would ordinarily have required extensive consultation, parliamentary scrutiny or judicial review. Once acquired, such powers are not always surrendered enthusiastically.
Public spending. Trillions of dollars were distributed through emergency programmes, often with reduced scrutiny. The United States Government Accountability Office subsequently documented extensive fraud and weaknesses in oversight.
None of these outcomes proves that the beneficiaries engineered the policies that benefited them.
But that is not the point.
Once a policy creates winners and losers, the winners acquire a powerful incentive to preserve it — even when its original justification has weakened.
The Trojan Horse — or Something More Ordinary?
Kostoff goes further than this.
In his concluding remarks, he advances the hypothesis that the pandemic was used deliberately to bring about political change in the United States, with economic disruption and changes to voting procedures serving that objective.
That is a serious allegation, and one that requires considerably stronger evidence than the identification of those who benefited.
Indeed, an important part of the analysis presented in the article makes precisely this distinction.
It separates four questions:
What actions were taken?
What consequences followed?
Who benefited?
Is there evidence that those benefits motivated the original decisions?
The first three questions can often be answered with reasonable confidence. The fourth is considerably more difficult.
And here is where I think the concept of perverse incentives offers a more compelling explanation.
We do not need to believe that someone planned the entire sequence of events.
A genuine emergency can create extraordinary opportunities. Individuals, businesses, bureaucracies and political institutions then respond to those opportunities in ways that advance their own interests.
The resulting pattern may look remarkably coordinated, even when no central coordination exists.
It is the cumulative consequence of many people pursuing their own objectives.
The Missing Feedback Loop
In a competitive marketplace, poor decisions generally carry consequences for those making them.
A business that repeatedly misjudges its customers risks losing those customers. An investor who makes poor investments loses money.
But government and large institutions frequently operate under a different set of rules.
The people making decisions are often insulated from their consequences.
A bureaucrat who imposes an unnecessary restriction does not personally compensate the business owner who loses everything.
A policymaker whose decisions damage children's education does not necessarily bear the long-term costs.
An institution that expands its authority during an emergency may have every reason to defend that expansion long after the emergency has passed.
This is not an argument against government, public health or collective action.
It is an argument for recognising that good intentions do not eliminate bad incentives.
Indeed, the more noble the declared objective, the easier it can become to overlook the incentives operating beneath it.
What Should We Have Learned?
The pandemic presented governments with genuine and difficult choices, particularly when knowledge of the virus was limited. Some interventions saved lives; others imposed substantial collateral costs. Their effectiveness and proportionality varied by policy, place and time.
But whatever one's assessment of the individual measures, the experience should have taught us something about institutional behaviour.
Emergency powers require independent scrutiny.
Temporary measures need clear conditions for their termination.
The people advising governments should be required to consider not merely the benefits of their recommendations but also their economic, social and human costs.
And where possible, the consequences of decisions should be visible to — and influence the accountability of — those making them.
Most importantly, we should resist the temptation to judge a policy solely by the intentions of its proponents.
The relevant question is not simply, "What are they trying to achieve?"
It is also, "What incentives are driving their behaviour, and who bears the cost if they get it wrong?"
Perverse Incentives — A Recurring Theme
Regular readers of Grappy's Soapbox will recognise this as a theme I have explored before.
In Perverse Incentives — How Good Intentions Go Bad and its follow-up, Perverse Incentives — Part 2, I explored how individuals and institutions, acting quite rationally in pursuit of their own interests, can produce outcomes that are contrary to the interests of society as a whole.
The COVID experience provides another, particularly dramatic illustration of the same underlying problem.
The essential question is not whether the decision-makers believed they were doing the right thing. Many undoubtedly did.
It is whether the incentives governing their decisions encouraged outcomes that were also right for the wider community.
When personal or institutional success becomes disconnected from the public good, even well-intentioned decisions can lead us badly astray.
A Lesson Far Beyond COVID
Perverse incentives are not confined to pandemics.
They can be found in climate and energy policy, financial regulation, education, welfare, corporate management and virtually every field in which decision-makers are rewarded for achieving narrow objectives while the broader costs fall on others.
They explain why bureaucracies expand, why temporary programmes become permanent, why regulations sometimes protect established businesses against competition, and why policies that demonstrably fail can nevertheless survive.
We often look for villains when institutions produce bad outcomes.
Sometimes villains exist. Corruption and deliberate exploitation are real.
But often the explanation is more mundane — and therefore more troubling.
Ordinary people, pursuing entirely understandable personal and institutional interests, can collectively produce extraordinary harm.
The greatest danger may not be a conspiracy of bad people. It may be a system in which perfectly ordinary people are rewarded for making decisions that are bad for everyone else.
And unless we understand that, we are destined to repeat the same mistakes.
For readers interested in the detailed analysis, Dr Ronald N. Kostoff's article, “Was the COVID-19 Pandemic a Trojan Horse?”, published by TrialSite News on 6 October 2026, examines the economic, political and institutional consequences of the pandemic response. It is an opinion article, and some of its more far-reaching hypotheses should be distinguished from its documented observations.
