Further Reading: How Incentive Structures Manufacture Error

Essential

Vaughan, D. (1996). The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. University of Chicago Press. The definitive structural analysis of the Challenger disaster. Vaughan's concept of "normalization of deviance" is essential for understanding how organizations gradually accept increasing risk. Dense but rewarding. (Tier 1)

Oreskes, N. & Conway, E. M. (2010). Merchants of Doubt. Bloomsbury. Documents how a small group of scientists, working with industry funding, manufactured doubt about tobacco, acid rain, the ozone hole, and climate change. The definitive account of the "doubt is our product" strategy. (Tier 1)

Goldacre, B. (2012). Bad Pharma. Fourth Estate. The most accessible and thorough treatment of pharmaceutical incentive misalignment. Covers trial design, publication bias, marketing, and regulatory failure. Essential for anyone in healthcare. (Tier 1)

The Financial Crisis

Lewis, M. (2010). The Big Short. W. W. Norton. The rating agency incentive problem is vividly depicted. Accessible to non-financial readers. (Tier 1)

The Financial Crisis Inquiry Commission (2011). The Financial Crisis Inquiry Report. The official investigation. Documents the incentive misalignments that contributed to the crisis. Available free online. (Tier 1)

The Opioid Crisis

Research on the role of pharmaceutical marketing and incentive misalignment in the opioid epidemic has been documented in multiple sources, including Patrick Radden Keefe's Empire of Pain (2021) on the Sackler family and Purdue Pharma. (Tier 1)

Incentive Design

Kerr, S. (1975). "On the Folly of Rewarding A, While Hoping for B." Academy of Management Journal, 18(4), 769–783. A classic paper on incentive misalignment in organizations. The title says it all: organizations routinely reward behaviors that undermine their stated goals. (Tier 1)

Research on the structural incentives of academic publishing, including the "publish or perish" dynamic and its effects on research quality, has been studied by multiple researchers, including Edwards and Roy's analysis of perverse incentives in academia. (Tier 2)

For Instructors

The Challenger teleconference transcript makes an excellent classroom exercise. Assign students different roles (NASA manager, Thiokol engineer, Thiokol VP) and have them debate the launch decision within their role's incentive constraints. The exercise demonstrates viscerally how incentive misalignment produces wrong outcomes from individually rational behavior.