Incentives turn against term-time holidays for families

Both my ECONS101 and ECONS102 classes covered incentives this week (among other things). So, I was interested to see this article in the New Zealand Herald last week:

Families with school-aged children are choosing not to take their children out of school to travel, Flight Centre data has shown, as the Government cracks down on truancy.

Flight Centre New Zealand general manager Heidi Walker said it appeared the messages from the Ministry of Education were getting through to parents.

New data had shown travel bookings during the winter holidays were up 10% from last year, while travel during the school term had dropped 30%.

It comes after the Government announced in April it would start cracking down on truancy by introducing a “traffic light system” of punishments for students and their parents, including fines for parents and police referrals.

Incentives are rewards or punishments that influence the benefits and costs of the alternatives that a decision-maker can choose. In this case, parents can choose to go on holiday during the winter school holidays, or during term time. Going on holiday during term time means parents must take their children out of school.

Because of the Government's recent rule changes, parents now face the risk of punishment if they take their children out of school to go on holiday. The cost of term-time holidays has therefore gone up, because the 'full cost' of the holiday includes not just the price of the holiday, but also the risk of punishment for children missing school. When the cost of something increases, we tend to do less of it. The increase in the cost of term-time holidays leads families to take fewer term-time holidays (which have decreased by 30 percent, according to the article).

However, the policy change also affects holidays during the winter school holiday period, even though the full cost of those holidays has not changed. To see why, consider the relative price (or relative cost) of travel during school holidays compared with travel during term time. Since the cost of travel during term time has gone up, and the cost of travel during school holidays has remained the same, the relative price of travel during school holidays has decreased (travel during school holidays is now relatively cheaper than travel during term time, compared with before the policy change). When the relative price of something decreases, we tend to do more of it. The decrease in the relative price of travel during winter school holidays leads families to do more winter school holiday travel (which has increased by 10 percent, according to the article).

Incentives matter. They affect our decisions, by changing the costs and/or benefits of the alternatives available for us to choose.