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I have been in Singapore for close to three months now. It’s a nice place to live, work, eat and travel and that is enough to make me stay here. But, the thing that fascinates me the most about the place is the “design of incentives and disincentives.” Once you start noticing the minute details about how they have built the nation and systems, you feel amazed at the power of incentives. There is an incentive here for all the “right” behaviours and disincentives for all the “wrong” ones. Let me pick up some common examples. Singapore, for most parts of the 20th century, was a dirty country. To discourage littering, the government enacted heavy fines and followed it up with superb enforcement. Fines for littering can be as high as $5000 and repeat offenders might be sent for “behaviour – correction” activities like cleaning of public parks! I know it sounds like an overbearing idea, but it has worked for the country. And then, there is the much-admired Electronic Road Pricing system and taxes on automobiles, which disincentivizes people to own cars and drive downtown during peak hours. The pricing of parking lots, roads and cars themselves, coupled with a super efficient public transport system, incentivizes people to take public transport instead of driving around, adding to the congestion and polluting the environment. There could even be an incentive for taking early morning trains to town and easing off the peak hours. Every action or inaction has a price to it. Since it needs talented people for the economy, there are incentives to take up Permanent Residence in the country and enjoy several benefits. There are strong disincentives for smoking as it is a major cause of health problems and puts a burden on government spends. Heavy taxes make cigarettes quite expensive and there is no way you can legally get cigarettes from other countries without paying the hefty duties.

While I frantically look for such incentives, I have been disappointed with one particular system – the system of service charge or tipping at restaurants. Most eating places have the service charge of 10% included in the bill. Tipping is discouraged in most eateries and even prohibited at the airport and other places. Now, I eat out a lot and try many restaurants and whenever I fork out the dollars, I expect reasonable service. But, I find that missing in so many of these places. Having a fixed, pre-determined service charge could act as a disincentive for providing great customer service and lead to complacency or indifference in the minds of the men and women who work in these restaurants. They are effectively guaranteed the tip, irrespective of how they treat the customers! I simply fail to understand this in a place like Singapore, which goes all out to encourage the right behaviours.

Here is the link to a nice read (slightly dated) on this topic http://www.singaporeangle.com/2006/11/service-charges-replace-with-tipping.html

Update: Check out another similar post by me.