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Need help? Be sure to have “skin in the game”

Need help? Be sure to have “skin in the game”Abstract

Assistance which attempts to promote the welfare of others independent of performance or effort, or in other ways undeserved or earned may have downsides. Kindness may over time result in recipients’ reduced effort. Thus, it is important not to allow honorable intentions in providing aid and assistance blind individuals to negative consequences—not the good envisioned. Examples of the harmful consequences of well-meaning assistance which often results in entitlement and dependency are discussed. Requiring “skin in the game” and providing autonomy-oriented help as practiced by Habitat for Humanity and some other charitable groups is offered as a possible alternative consideration.

Keywords: assistance, helping, dependency

IntroductionTheodore Roosevelt (cited in King, 2013) said: “Nothing in the world is worth having or

worth doing unless it means effort, pain, difficulty… I have never in my life envied a human being who led an easy life. I have envied a great many people who led difficult lives and led them well.” We can easily point to successful people who we admire who have sacrificed, gone through some painful experiences, and ultimately struggled to get to where they are.

There is a well-known story often told in some variation or another, about a young boy who watched a caterpillar struggling in a cocoon for several hours. In an attempt to help the caterpillar to emerge and become a butterfly, he opened the cocoon to release it but instead of a strong beautiful butterfly the caterpillar fell to the ground as its body was very small and wrinkled and its wings were all crumpled (Bliss and Burgess, 2012). Is struggling essential to experience living? Many would argue that struggle is an essential part of life to help us become stronger persons.

Brunson (2014) argues that struggling is important for elementary school children in order to develop “intellectual growth and development, independence, confidence, grit, problem-solving skills, emotional strength and perseverance”. In the field of business, Snyder (cited in King, 2013) believes that success and greatness go hand in hand with overcoming struggle. Snyder, the managing director of a leadership development consulting firm, recommends seeking challenging assignments and difficult goals, treat negative feedback as an opportunity for growth, and learn how to remain grounded and centered.

Like the caterpillar’s strength-building process in emerging from its cocoon, sometimes work, effort, and struggle are precisely what is needed for the next series of trials to be faced and should not be short-circuited or undermined by kindly intervention. Facing moderate difficulties may have long-term benefits. This has been referred to as stress inoculation (Meichenbaum, 1993) and steeling (Rutter, 2006). Additionally, Dienstbier’s (1989) theory of toughness holds that limited exposure to stressors—with opportunities for recovery in between—can “toughen” individuals and foster hardiness. Toughness results in psychological and physiological changes that make people more likely to perceive stressful situations in general as manageable (rather than overwhelming) and to cope effectively with them. Sheltering individuals from all stressors and negative events and protecting them from the natural consequences of their actions by


providing excessive help may inhibit such toughness (Gray, 2013; Seery, 2011). Furthermore, DiCorcia and Tronick (2011) noted that infants develop a propensity for resilience based on successfully managing everyday difficulties, which is enabled by caregivers who are neither under-attentive nor over-attentive.

Those who refuse to exert effort or receive the wrong sort of help are often left unprepared to fight the next battle or overcome succeeding challenges—and thus have not “earned their wings.” Cohen and Wills (1985) described four very common types of help that people receive frequently: (a) esteem support (i.e., emotional support); (b) informational support (i.e., advice); (c) social companionship; and (d) instrumental support. Instrumental support, which is the type of help discussed in the present review, is defined by Cohen and Wills (1985) as “the provision of financial aid, material resources, and needed services” (p. 313). Helping occurs when a person who has superior resources directs those resources toward another person in need (Halabi, Nadler, & Dovidio, 2011). Thus, helping can easily convey caring and generosity on the part of the helper; however, sometimes help may very well be interpreted otherwise. Specifically, help can signify the dependence of the recipient on the help giver, producing negative consequences for the recipient. At the individual level, receiving help may threaten people’s personal self-esteem because it can imply the inferiority of the recipient, relative to the helper (Nadler, 1991, 1998; Nadler & Fisher, 1986), while also undermining their confidence and motivation to succeed (Fisher, Nadler, & Whitcher-Alagna, 1982).

Moreover, Shell and Eisenberg (1992) suggested that children often react negatively to offers of help that suggest that they are incompetent or not in control. They also suggested that instrumental help is more likely than other kinds of help to give children that impression. Older adults act similarly. Martini, Grusec, and Bernardini (2003) studied help between older mothers and adult daughters—including both mothers helping daughters and daughters helping mothers—and found that both mothers and daughters were uncomfortable receiving instrumental help, but less uncomfortable with receiving other kinds of help.

Thus, within the context of instrumental help there can be unplanned negative consequences and both long-term and short-term effects must be considered. This review aims to encourage a thoughtful consideration of the possibility that instrumental giving, aid, assistance, and relief may cause unintentional harm because of unwholesome dynamics and pathologies that fester under the cover of kindheartedness. In our analysis we explore the dynamics of helping by first noting the increased calls for societal compassion, altruism, and assistance. We then examine help within the context of the incentives from the perspective of the aid recipient and then present selected areas where help may be hurting recipients. We then offer a model of helping based on individuals having “skin in the game” as endorsed by Habitat for Humanity and conclude with a summary.

Calls for Increased Help, Assistance, and Other Prosocial Behavior

The criticism following the financial and political crisis of the Great Recession has highlighted the lack of societal responsibility and caring for others and in response to such severe criticism there have been calls for increased demonstrations of compassion, helpfulness, grace and prosocial acts toward those in need (Dutton, Workman, & Hardin, 2014; George, 2014). Such appeals are aimed at ultimately increasing “helping behaviors”, “caring behaviors”, and “altruism” (Brief & Motowidlo, 1986) that commonly includes kindness understood as generosity, nurturance, care, altruistic love, compassion, and “niceness” demonstrated by doing


favors and good deeds for others, helping them, and taking care of them (Armstrong, 2010; Park, Peterson & Seligman, 2004). Nadler (2002) suggests that helping others is a positively valued behavior in most, if not all, human societies.

Additionally, a global community of scholars, writers, specialists, and teachers interested in demonstrating the well-being benefits of positive traits, states, and experiences such as compassion, altruism, and helping has recently emerged including the Greater Good Science Center at the University of California at Berkeley, the Center for Compassion and Altruism Research and Education at Stanford University, the Compassion Lab at the University of Michigan, the Centre for Positive Psychology at the University of Melbourne, the Well-Being Institute at the University of Cambridge, and the Optentia Research Programme in South Africa.

Moreover, the work of such researchers and practitioners, as they attend to big and small suffering, has overwhelmingly concentrated on persons who provide help rather than persons who receive it. Comparatively little has been devoted to the effect of aid on recipients (for an exception, see Nadler, 2015). It is often assumed that helping is constructive and beneficial and that these beneficiaries of aid are grateful for the help received (Fisher, DePaulo, & Nadler, 1981; Zarri, 2013). These social scientists have identified a host of ways in which charitable behavior can lead to benefits for the giver, whether economically via tax breaks (Clotfelter, 1997), socially via signaling one’s wealth or status (Glazer & Konrad 1996) or psychologically via experiencing well-being from helping (Andreoni, 1990; Dunn, Aknin, & Norton, 2008; Grant, 2013; Post, 2011). Similarly, researchers have also examined the costs (e.g., compassion fatigue and burnout) of helping and caring on aid givers who assist the needy and the traumatized (Figley, 1995; Flynn, 2003).

This focus has obscured the prevalence of problematic effects of such prosocial factors on aid receivers. This is because oftentimes such programs are designed and implemented with little awareness that helping may hurt (Corbett & Fikkert, 2014); that is, well-meaning initiatives wind up hurting the parties they were designed to help. Unintended consequences are usually (but not always or necessarily) negative and were elevated by Levitt and Dubner (2009) to the status of a law (“… one of the most powerful laws in the universe …”, p. XIV) because of their pervasiveness. One unintended consequence can cause other unintended consequences resulting in significant harm in the long term in a number of ways.

With respect to aid, many such efforts have undoubtedly been motivated, in part, by noble intentions and a sincere desire to help those thought to be disadvantaged. Nevertheless, offering aid can sometimes generate seriously negative effects in recipients including loss of self-reliance, increased levels of dependence, feelings of discomfort and obligation, decrements in self-esteem and social status, a sense of entitlement, and derogations of the helper and the help (Fisher et al., 1981). Like in the story of the boy and the cocoon, sometimes providing aid, even with the best of intentions, can be problematic and thus an analysis of the negative side of helping is addressed in this paper. Unfortunately, many individuals find it difficult to question the merits of any given proposal offered in good faith and thus often costs and other negative unexpected consequences are not anticipated and addressed.

All too often the best long-term action to help others is not immediately or intuitively obvious; not what temporarily makes people feel good; or not what is being promoted by others with their own potentially self-serving agendas. Indeed, beneficial care may sometimes be cruel or harmful, the equivalent of saying “no” to the student who demands a higher, undeserved grade, or to the addict who wants another hit. Was Paul, the Apostle in early Christian history, unusually callous in admonishing early Christians about idleness when he said, “… The one who


is unwilling to work shall not eat” (2 Thessalonians 3:10, New International Version)? St. Paul was concerned, according to a recent interpretation by Pope Francis, with the “false spiritualism of some who live off the backs of their brothers and sisters without doing anything” (Harris, 2015). The issue is not refusing to give aid to those who cannot help themselves or people who do not have the physical ability to earn; the problem is exclusively living off the graciousness and generosity of others.

Hidden Costs of Helping

In some cases, rather than having benign effects, attempts to help others may come with very real (but often hidden) costs that can worsen the very realities that were meant to be alleviated. Nobel prize-winning economist Milton Friedman (1975) warned of such harms when he said that “there is no such thing as a free lunch” (p. 1) because someone, somewhere always pays and that there are always costs involved. The first reference to this idea originated in 19th century U.S. saloons whereby free lunches were offered to customers who purchased at least one drink. The foods, being high in salt, would entice customers to consume more drink, usually beer. As such, the “free lunch” carried a hidden cost to the recipients of the meal, namely, the price paid for each extra unit of drink, which effectively ended up paying for the lunch. Marketers know that the offer of a free sample can lead to a larger purchase that more than compensates for the cost of their “initial” gift (Martin, Goldstein, & Cialdini, 2014).

Receiving a “free lunch” from the government also has a hidden cost as Daniel Patrick Moynihan, a lifelong New Deal liberal, former New York Senator, and accomplished social scientist indicated: “the issue of welfare is not what it costs those who provide it but what it costs those who receive it” (as cited in Pivin & Cloward, 1979, p. 340). The point was that welfare often exacts a very high price because it robs aid recipients of their self-worth and self-reliance, key American, even human, values, and makes them dependent and entitled (Halvorsen, 1998).

Receiving benefits and advantages unrelated to an individual’s behavior, performance, or accomplishment often leads to them becoming labeled with two pejorative terms 1) dependent—an unhealthy reliance on someone or something else for aid or support sometimes seen as “a defect of individual character” (Goodin, 1988, p. 89) that takes away the freedom of personal initiative (Adriaansens, 1994), and promotes feelings of indebtedness, incompetency, and negative affect (Buunk, Doosje, Jans, & Hopstaken, 1993); and 2) entitled—a pernicious and unfounded belief that one possesses a legitimate right to receive special privileges, mode of treatment, and/or designation (Kerr, 1985). According to researchers (e.g., Campbell, Bonacci, Shelton, Exline, & Bushman, 2004; Snyders, 2002) persons with high perceived entitlement and deservedness levels believe that they are owed many things in life where they do not have to earn what they get, and regardless of performance levels. These individuals often develop a sense of privilege because they have received unearned benefits due to the groups they belong to (e.g., because of their gender or the color of their skin) rather than because of anything they have done (Johnson, 2006). In the work context, employees with entitlement beliefs display a tendency toward unethical behavior and conflict with their supervisors, unrealistic pay expectations, low levels of job satisfaction, high levels of turnover intention, perceived inequity, job dissatisfaction, and even corruption (Kets de Vries, 2006; Levine, 2005). At extremely high levels entitlement often is associated with narcissism (Ackerman & Donnellen, 2013)—a decidedly negative trait. Thus, a “free lunch” can be damaging—and even reflecting about a free lunch can be problematic.


The implication here is that gifting and aiding people, for who they are, unrelated to what they do or achieve, often results in adverse effects for those individuals. Dependency is created when incentives to work are removed, yet benefits are still received. If people are compensated for their characteristics, qualities, membership status, or state of being as opposed to behavior, performance, accomplishment, or achievement then they may become in the long-term indolent, dependent, entitled, and narcissistic.

At the risk of verging on the polemical, the goal of this article is to open up perspectives as much as analyzing facts and to bridge the chasm between the rhetoric and the reality of giving. We recognize that those who question benevolence are not going to win many popularity contests and in some ways we feel somewhat uncomfortable by suggesting that helping and assisting others in the short-run may actually hurt them in the long-term. In part this is because in U.S. culture giving and providing aid are often viewed as monolithically positive, nearly sacred qualities beyond reproach with negligible tradeoffs, whether or not the assistance is genuinely beneficial (Oakley, Knafo, & McGrath, 2012). “It’s the thought that counts,” as the saying goes, when discounting negative consequences of giving, assisting, and helping.

We are not trying to discount the importance of donating or providing aid to others but to address those who have extolled its value without realistically considering when such actions may contain the potential for significant harm. The major implication of this review is not a call for a reduction of aid, help, and care but rather an appeal for rethinking strategies for assisting others. Sometimes help is truly facilitating and at times, particularly in the long-run, it contributes to inadvertent harm mostly due to the detrimental effects of entitlement and aid dependency.

Some individuals, however, find it disturbing to question the value of compassion, altruism, charitable giving, and empathy and seem to suggest that these qualities be revered without question (Center for Compassion, n. d.; Oakley, 2013). Indeed, Webber (2008) suggests that individuals tend to avoid working through downside scenarios because they are upsetting and that it is “… simply easier to put on blinkers and believe everything will work out than to confront the complexities of modern life” (p. 30). It seems people find it difficult to question the merits of any given proposal offered in good faith. If there are negative effects of helping, some say, then surely it is an aberration. Konrath and Grynberg (in press), for instance, indicate that their paper is one of the most comprehensive reviews to date on the potential liabilities associated with empathy. They seem, reluctant, however, to write this when they indicate: “Empathy is nearly always a desirable attribute in relationship to our loved ones and other social interaction partners, but it comes with a few ‘thorns’ that need to be reconciled with its otherwise highly adaptive nature” (Konrath & Grynberg, in press, p. 25).

But a growing body of research indicates that virtues across a wide number of domains can wreak havoc in the long-run and at certain levels can have antithetical consequences on well-being and/or performance (Breeden, 2013). In many areas one finds that seemingly virtuous behavior may be problematic. Grant and Schwartz (2011), for example, document the deleterious effects of such honorable qualities as gratitude, forgiveness, hope, citizenship behavior, caring, kindness, generosity, volunteering, and empathy. In a particularly poignant example Grant and Schwartz note Groopman’s (2007) failure to diagnose a life-threatening infection in a hospitalized cancer patient because his empathy for the patient’s discomfort in the face of grueling chemotherapy induced him not to ask the patient to roll over and be examined for bedsores. Thus, to say that helping is an absolute good is simply painting with too broad a brush


and that attempts to assist others sometimes come with impairments and can have tradeoffs that worsen the very concerns that were meant to be eased.

The Impact of Incentives

Incentives are the cornerstone of modern life (Levitt and Dubner, 2005, 2009) and come in three varieties: moral incentives—by which one acts out of conscience or conviction; social incentives—by which actions are related to shame or glory; and economic incentives—causing people to act in their financial interest. A grasp of incentives is the key to clearly understanding any human behavior. We now examine the sometimes problematic effects of aiding others within the context of several approaches that in some way or other are all associated with incentives. First, the Samaritan’s Dilemma is reviewed followed by a conversation about moral hazard and finally the general topic of rewards is presented. These three concepts are drawn upon to point out the potential costs to aid beneficiaries.

The Samaritan’s DilemmaBeneficence toward those less fortunate, assisting people in need, demonstrating kindness

to others, generosity, and trying to relieve individuals’ grief and misery through help, aid, favors, and donations is often portrayed as one of society’s main moral duties (Salter, 2008). While there are very few who are so hardened and self-interested that they have no concern for the plight of others, typically people of all types and degrees of political and religious disposition experience this feeling.

Perhaps one of the most powerful appeals for helping others in western culture comes from the Biblical story of the “Good Samaritan” (Luke 10:29-37, New International Version).In traveling from Jerusalem to Jericho, the Samaritan (the altruist) assisted a man who had been robbed and beaten by thieves. Under the circumstances of this event, the Samaritan is properly lauded for his exemplary conduct. However, an unintended consequence of such generosity is that it may induce adverse behavior of other potential aid recipients. In what became known as the “Samaritan’s Dilemma,” Buchanan (1975) illustrated that if the Samaritan decides to assist more unlucky travelers, other journeyers would likely take less care to avoid thieves and other hazards.

The Samaritan’s Dilemma hinges on the idea that providing assistance to people can induce them to take less care of themselves because of the anticipation or expectation of assistance and charity (Pasour, 1991). The Samaritan’s Dilemma arises whenever actual or anticipated “altruistic” behavior on the part of one actor (the Samaritan) leads to exploitation on the part of a potential beneficiary, such that the Samaritan suffers a welfare loss relative to the situation that would have obtained had the beneficiary not acted strategically. The Samaritan’s dilemma calls attention to the certainty that providing too little assistance will result in unnecessary suffering in the short-term, but providing too much assistance sometimes results in toxic effects over time (Campbell & Campbell, 2009). While an altruist may simply focus on transferring charity to the recipient, an individual aware of the Samaritan’s Dilemma instead may tend to emphasize what could make the help more fruitful in the long run.

In a broad sense, a Samaritan can be viewed as anyone trying to help people in need. Moreover, this dilemma arises in personal choice situations in many different contexts when individuals try to extend assistance to others. Most people have personally experienced the Samaritan’s dilemma when confronted with winos and other street people “in need.” On the one


hand, there is a desire to help the less fortunate, some of whom cannot help themselves. On the other hand, there is the recognition that a handout may be harmful to the long-run interests of the recipient. As another example, should an individual permit a neighbor readily to borrow groceries or tools if this is likely to encourage the neighbor to be in chronic need of assistance in the future (Wagner, 1989)? Does extending an unemployment benefit create an incentive not to work, or is it the humane thing to do in a harsh job market? Does a potential aid recipient increase his or her risk of becoming impoverished because they know that a benevolent government will step in to provide relief? The Samaritan’s Dilemma is also commonly encountered in the home. Consider the discipline and rearing of children. Who can deny that the parent who succumbs to pressure from a pleading child to make a purchase while shopping has increased the likelihood that the child will exhibit similar behavior in the future? What should the benevolent parent do in such situations were short-run assistance is likely to create long-run problems? In the academic area a teacher returning exams is confronted by a complaining student and increases the grade of the student, one form of giving aid. This action is the easy thing to do in the short run, however, helping that students makes for long-run problems by increasing the number of student complaints. In short, the Samaritan’s dilemma arises whenever the extension of aid increases the number of situations requiring aid. Thus the Samaritan’s Dilemma is a pervasive problem as people respond individual to those in “need.”Buchanan (1975) indicated that “we may simply be too compassionate for our own well-being or for that of an orderly and productive free society” (p. 71) and that such altruism, if left unchecked, would have catastrophic consequences for the human race as a whole.

Moral hazardThe problem the Samaritan faces in providing assistance is a specific example of what is

more generally is known as a moral hazard. Broadly speaking, moral hazard occurs when one party has a tendency or incentive to behave inappropriately. The basic problem is as follows: people who have a reasonable expectation of altruists assisting them in case of need may alter their own behavior to shift the costs of preventing needs onto altruists. When risk is not fully borne by an actor, there will be an “excessive” risk taking (Chang, 2000). A party that is protected in some way from risk will act differently than if that party did not have that protection (Beattie, n. d.). Historically, the term moral hazard has been used most widely in the insurance industry, originally where insurers were concerned that people of weak moral character would take advantage of insurance by being careless of insured risks, or even to defraud insurers through deliberate acts such as arson. More recent definitions tend to focus on the tendency of people to adjust their behavior to a certain level of risk—so, in one classic example, the introduction of compulsory seat-belt wearing led to otherwise more risky driving and an increase in other types of car-related accidental injury. This is distinct from any concern about poor character.

A moral hazard problem arises whenever an individual’s behavior is affected because he or she is protected from the consequences of their actions. Whenever they do not need to bear the full consequences of their actions, economic agents will behave “irresponsibly” in the sense that they take more risk than they would do otherwise. When people are insured, according to moral hazard, people are less careful to avoid or prevent accidents, diseases, thefts, and other losses, and thus, insurance indirectly increases the number of losses. Insurance also operates directly to increase adverse events by giving insured people an incentive to bring about the very harms and damages for which they are insured so they can collect financial proceeds.


Moral hazard is sometimes referred to as charity hazard (Browne & Hoyt, 2000) or disaster syndrome (Kunreuther, 2000) and is usually applied to the insurance industry. It is the phenomenon that people underinsure or do not insure at all due to anticipated governmental assistance and/or private charity (Browne & Hoyt, 2000). It means that people with insurance may take greater risks than they would do without it because they know they are protected, so the insurer may get more claims than it bargained for (Einav, Finkelstein, Ryan, Schrimpf, & Cullen, 2013). Insurance companies worry that by offering payouts to protect against losses, they may actually encourage risk-taking, which results in them paying more in claims. Insurers fear that a “don’t worry, it’s insured” attitude leads to policyholders with collision insurance driving recklessly or fire-insured homeowners smoking in bed.

A typical example of moral hazard arises when government provides unemploymentinsurance, or “the dole” (Kuperman, 2008, p. 221). The goal is to provide temporary financial protection to the jobless, to mitigate the negative impact on them and the larger economy, and to facilitate their finding a good job. But in practice, by alleviating suffering, such insurance creates moral hazard that encourages both irresponsibility (not looking hard for a job) and outright fraud (deliberately not finding a job, for those who prefer a work-free insurance payout to working for a higher salary; Baker, 1996). Thus, a policy intended to increase income of the disadvantaged may unintentionally have the opposite effect. The dole is not responsible for all unemployment, yet scholars and governmental administrators still strive for reforms to mitigate its perverse contribution to the very problem that it was intended to solve.

A moral hazard occurs in economics when one of the parties to a transaction is insulated from bad effects if the transaction goes poorly. This will cause the insulated party to behave more recklessly than if the full impact of the failure of the transaction were felt. Government bailouts of course establish a precedent that if a big business suffers a loss, that the government might bail it out. No doubt many of our major financial institutions have learned the lesson that if a financial fiasco is large enough, the U.S. government will come to the rescue, and put the taxpayers on the hook for another few trillion that they cannot repay.

This domestic example has been replicated on an international scale in recent years by the advent of bailouts from the International Monetary Fund (IMF). Such bailouts provide an infusion of hard currency to states in emerging markets that otherwise would default on their foreign debt because of severe balance-of-payments deficits. The goal is to preserve domestic and international economic welfare and stability by reassuring lenders and investors that they can continue to do business in emerging markets without fear of huge losses. But reducing the penalty to states for risky economic policies and to lenders for risky loans has the unintended consequence of encouraging these inefficient behaviors that undermine economic stability (Blustein, 2004). This appears to be the case with Greece that in mid-2015 asked the IMF and European creditors for a third financial bailout since 2010.

A system whereby relief or aid is given to the worst off may create moral hazard, because people or institutions receiving help for being worst off have less incentive to improve; that is, a moral hazard is induced by the expectation of assistance. Moral hazard problems arise whenever individuals’ behavior is affected because they are protected from the consequences of their actions. Moral hazards are encountered every day: tenured professors have secure jobs and poor teaching or research have little or no career consequences, people with auto theft insurance are less vigilant about where they park, salaried salespeople take long breaks, and so on.

Where Helping May Be Hurting


The sometimes unforeseen misfortunes of helping and giving are explored here by examining several areas where benevolence may be problematic for receivers of aid. In such areas—affirmative action, Native American experience, home ownership, nursing home residents, foreign aid, parental behavior, and welfare—helping people can hurt. The factors reviewed are not intended to be an exhaustive listing; rather, it is hoped this collection will provide a foundation for examining what happens when people get something for nothing. As can be seen in these examples, gifts and handouts that are granted without reciprocity (rewards given non-contingently) often have negative long-term costs despite short-term gains.

Affirmative actionTo level the playing field, organizations around the globe have implemented affirmative

action plans (AAPs) which are policies designed to improve work and educational outcomes for underrepresented groups by providing them with extra help (Jain, Sloane, & Horwitz, 2003; Sowell, 2005). AAPs are designed to facilitate a transition to more equal relations between ethnic and racial groups and to assist the less advantaged to realize their potential and attain equality, and thus help promote organizational and institutional diversity and redress societal injustice (Turner, Pratkanis, & Hardaway, 1991). It is perhaps the most important antidiscrimination technique ever instituted in the United States and has had a demonstrable effect on discrimination (Turner & Pratkanis, 1994).

Nevertheless, AAPs are not without drawbacks. Although important in achieving such goals, these programs have, nevertheless, been criticized as amplifying the disadvantaged group’s dependence and inferiority that is implied by dependence on another’s assistance (Nadler & Fisher, 1986). This perpetuates rather than corrects social inequality (Niemann & Dovidio, 2005; Pratkanis & Turner, 1996). These procedures can also stimulate backlash among non-beneficiaries who may feel unfairly disadvantaged by these policies (Lynch, 1992; Shteynberg, Leslie, Knight, & Mayer, 2011). In addition, AAPs can cause the very employees they are intended to benefit to be stigmatized as incompetent by both others and the self (e.g., Heilman, 1994; Leslie, Mayer, & Kravitz, 2014).

Specifically, the presence of AAPs raise the possibility that members of the groups the AAP targets were hired due to their demographics, not their qualifications. Scholars have theorized that others therefore discount the possibility that AAP targets are competent (e.g., Garcia, Erskine, Hawn, & Casmay, 1981; Heilman, Block, & Lucas, 1992) and, in a parallel fashion, that AAPs and the associated possibility that demographics played a role in selection cause AAP targets to doubt their self-competence (e.g., Heilman, Simon, & Repper, 1987; Niemann & Dovidio, 2005). Perceived incompetence likely results in poor performance outcomes (e.g., Heilman & Alcott, 2001) leading Steele to indicate that “…Preferential treatment, no matter how justified in the light of day, subjects blacks to a midnight of self-doubt, and so often transforms their advantage into a revolving door (S. Steele, 1990, pp. 117-118). Programs awarding preference according to race or sex are also opposed on the grounds that they cause much more harm than good because such preferential treatment programs encourage dependency and reward people for identifying themselves as victims providing them no incentives to become self-reliant or to develop the skills necessary to succeed in the work place or classroom (Eastland & Bennett, 1979; Howard & Hammond, 1985; Steele, 1997).

Affirmative action in higher education, intended to address past discrimination, has resulted in fewer black college graduates—particularly in the fields of math and science—that were experienced in the absence of racial preferences (Riley, 2014). Similarly, Sander and


Taylor, 2012) argue that race-based admissions preferences for minority students lead to “mismatch” between students and universities. As a result of race-based preferences, students are admitted to more selective schools than they otherwise would be based on their academic credentials alone. Once enrolled at these more prestigious schools, the students fall behind and are less likely to finish. This “mismatch” effect, the authors contend, then cascades down all tiers of higher education, with the harmful effects becoming more pronounced at each successive tier.

Such AAPs reinforces ugly stereotypes of, for example, black inferiority and the pernicious notion that blacks are not academically talented which causes significant long-term harm. Affirmative action policies that initially said people must be judged without regard to race and sex evolved into policies that required the consideration of those characteristics leading Thomas Sowell, an American economist, social theorist, political philosopher to state, “I simply do not see the justice in making people who are badly off worse off, in the name of advancing them” (1983; see also Sowell, 2005).

In summary, to the extent that AAPs and the associated stigma of incompetence limit targets’ performance, AAPs may have the opposite of their intended impact. Thus, the benevolent intention that underlies affirmative action programs may be misconstrued and lead to increased tensions between the advantaged group that initiated them and the disadvantaged groups which are its intended beneficiaries. The charitable intentions directed towards one particular disadvantaged U.S. population segment, Native Americans, are now presented.

Native American experienceIn a highly controversial story, journalist John Stossel reported that Native Americans

have been “helped” by the government more than any other group, yet struggles more than any other group. Stossel (2011) reported that almost 25% of Native Americans live in poverty and 66% are born to single mothers. On some reservations, the poverty rate is 50% and higher. This, despite almost $13 billion spent across 20 federal government programs every year. On the other hand, Stossel points to examples of successful Native Americans not living on the reservation outperforming Natives living on reservations.

Increasing welfare payments may actually increase poverty levels. A study by Guedel (2014) of two dozen Native American gaming tribes located in the states of Washington, Oregon, Idaho, and Alaska found that growing tribal gaming revenues can make poverty worse. Between 2000 and 2010 casinos owned by those tribes doubled their total annual take in real terms to $2.7 billion. From an economic perspective, it would seem reasonable to expect the infusion of new capital provided by tribal gaming to be a catalyst for poverty reduction, and likewise expect to see the individual and collective poverty percentages for tribes decrease. On a collective basis, the actual results for these northwestern tribes demonstrated the opposite: an inverse correlation between per capita payments (in which tribes distribute casino profits directly to tribal members) and poverty reduction. Of the 17 tribes in the study that dispersed cash from casinos directly to members, ten (58.8 percent) saw their poverty rates rise. Of the seven tribes that did not provide per capita payments to members, only two saw a poverty increase. In tribes with high unemployment and poverty, per capita payments are often viewed as a means of collective support by and for tribal members, with each member eligible for an equal share of tribal wealth.

It appears that per capita payments for poverty reduction in Native American communities—which some have likened to a welfare-type system—provided a disincentive for work and dissipated tribal economic resources that could be better used to finance strategic initiatives such as scholarships for higher education (McGee, 2013). Indeed, Native American


Ron Whitener, law professor, tribal judge, and a member of the Squaxin Island Tribe indicated: “These [per capita] payments can be destructive because the more generous they become, the more people fall into the trap of not working” (Payne, 2015).Home ownership

More recently, well-meaning governmental policies to enact the American Dream of homeownership in the 1990s and early 2000s allowed less-than-qualified individuals to receive housing loans and encouraged more-qualified buyers to overextend themselves. Typical risk-reward considerations were disregarded because of implicit government support (Acharya, Richardson, van Nieuwerburgh, & White, 2011). As a result, homeownership for such historically “underserved” borrowers increased significantly; yet when economic conditions deteriorated, many lost their homes or found themselves with properties worth far less than they originally had paid, and taxpayers were left with trillion-dollar costs and a prolonged economic crisis.

Essentially, with the noblest of purposes, a permissive lending environment was created in which people were given too much money to buy houses they could not afford, resulting in catastrophic damage. The good intentions inherent in such “feel good,” emotionally-based practices frequently follow short-term, superficial heuristics for helping others that are often implemented without a critical, in-depth analysis of costs. An initial snap, common-sense judgment about what seems right in helping others can gel quickly into formidable certitude without consideration of important relevant facts. An awareness of the insidious effects of giving and helping could have facilitated better regulation in order to mitigate its costs and enhance its benefits. There may have been significant advantages for all U.S. citizens if some had been told “no.”

Welfare: individual and corporate welfare for individualsSometimes there are detrimental long-term effects on American families because of many

well-intentioned welfare programs (Funiciello, 1993; Voegeli, 2010). This appears to be a long-lasting issue and is endemic in government programs to assist the poor. Hazlitt (1971), for example, describes two lessons that can be drawn from the effects of welfare in ancient Rome: “The first is that once the dole or similar relief programs are introduced, they seem almost inevitably to get out of hand. The second lesson is that once this happens, the poor become more numerous and worse off than they were before, not only because they have lost self-reliance, but because the sources of wealth and production on which they depended for either doles or jobs are diminished or destroyed” (p. 219). In short, in collectively assisting the needy through government handouts, the number of the poor increased because work incentives were adversely affected.

As a more recent example, consider that Congress initiated cuts in welfare by passing The 1996 Welfare Reform Law (also known as The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 [PRWORA]) amid predictions that it would result in substantial increases in destitution, hunger, and other social ills. For example, Senator Daniel Patrick Moynihan (D-NY) proclaimed the new law to be “the most brutal act of social policy since reconstruction” (Huffington, 1996). He predicted, “Those involved will take this disgrace to their graves” (Welfare as They Know It, 2001, p. A14). However, in a six year evaluation of this welfare reform law Rector and Fagan (2003) noted that overall poverty, child poverty, poverty of single mothers, and child hunger declined substantially. Employment of single mothers increased dramatically, and welfare rolls plummeted. The share of children living in


single-mother families fell, and the share of children living in married-couple families grew, especially among black families. Pardue (2003) observed that black child poverty declined from 41.5% to 30% in this six year period—the biggest decline in recorded history. Cutting welfare payments, led to decreased levels of poverty suggesting that the government had induced otherwise able-bodied people to become dependent on welfare.

Interestingly, PRWORA also cut eligibility to Medicaid for noncitizen immigrants. Borjas (2003) found, contrary to expectations, that health insurance coverage among noncitizen immigrants increased after their eligibility for Medicaid was reduced—an effect that could not be explained by the robust economy of the 1990s. Borjas argued that affected immigrants increased their work effort and found jobs with health benefits.

We are in agreement with U.S. founding father, Benjamin Franklin who said some 250 years ago: “I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer” (Franklin, 1766).

Corporate welfareIt makes sense to bail out bankrupt banks and avoid financial meltdown in the economy,

but if governments offer this guarantee then banks have a greater incentive to take risks knowing they will get bailed out. Some hold that certain financial institutions are so large and so interconnected that their failure would be disastrous to the economy—and they therefore must be supported by government when they face difficulty. The colloquial term “too big to fail” has been used to describe this situation (Lin, 2010). By declaring a company too big to fail means that the government or central bank may step in and help these institutions if they get into financial trouble.

Financial bailouts of lending institutions by governments, central banks or other institutions can encourage risky lending in the future if those that take the risks come to believe that they will not have to carry the full burden of potential losses. Lending institutions need to take risks by making loans, and usually the most risky loans have the potential for making the highest return. So-called “too big to fail” lending institutions can make risky loans that will pay handsomely if the investment turns out well but be bailed out by the taxpayer if the investment turns out badly.

Taxpayers, depositors, and other creditors often have to shoulder at least part of the burden of risky financial decisions made by lending institutions (Brown, 2008; Wilson, 2009). According to the World Bank, of the nearly 100 banking crises that have occurred internationally from 1980 to 2000, all were resolved by bailouts at taxpayer expense (Boyd, Gomis, Kwak, & Smith, 2000).

As former Federal Reserve Bank chairperson, Ben Bernanke (2010), indicated, “If creditors believe that an institution will not be allowed to fail, they will not demand as much compensation for risks as they otherwise would, thus weakening market discipline; nor will they invest as many resources in monitoring the firm’s risk-taking. As a result, too-big-to-fail firms will tend to take more risk than desirable, in the expectation that they will receive assistance if their bets go bad.”

While government bailouts or intervention might help a company survive (e.g., Chrysler), some opponents believe it is counterproductive to help companies that deliberately take high-risk


high-return positions because they are able to leverage these risks based on the governmental policy preferences they receive (Drew, 2009; Gup, 2003). Some critics, such as former Federal Reserve chair, Alan Greenspan, believe that such large organizations should be deliberately broken up: “If they’re too big to fail, they’re too big” (McKee & Lanman, 2009). More than fifty prominent economists, financial experts, bankers, finance industry groups, and banks themselves have called for breaking up large banks into smaller institutions (The Big Picture, 2013). Relatedly, Suarez (1994) showed that the threat of being closed can be seen as “an effective way to induce the bank to be prudent when the present value of its future rents is sufficiently high” (p. 24) from which he infers that the optimal strategy for a central bank is to commit credibly to withdrawing the bank’s charter in case of bankruptcy. It appears that when people and firms are protected from the consequences of their behavior then bad things often happen.Windfall income

There is a difference between earned and windfall (unearned) income. Both supply large amounts of unearned capital to governments. The mechanism increases in severity as windfall income becomes a more. Windfall income, while helpful, has a deleterious side effect that negates any benefit the initial treatment might have. This is a much more feasible solution. While there are obvious benefits to what is essentially receiving free money, there is a roughly equal but opposite effect that eliminates the benefits of windfall income. If a substantial component of a country’s income comes from the following:

Both foreign aid and natural resources are gifts or windfalls to a developing economy. A

natural resource gift derives from nature. Foreign aid is a gift from first-world donors. Reliance on unearned income can be problematic. More generally it is the curse of windfall income and is a macroeconomic side-effect that negates the positive effects of unearned capital by raising domestic prices and lowering competitiveness.

Windfall income can be defined as income that does not derive from the efforts of domestic labor, land, and capital. Most windfall income takes the form of either foreign aid inflows or natural resource rents. For many resource economies, foreign companies provide the capital and skilled labor to extract resources. Most inputs to the industry are produced abroad, meaning that the resource sector has only a tangential relationship with the remainder of the economy. Similarly, aid is frequently given either in the form of internationally produced goods or in funds to provide localized services such as health and education. These goods do not help productivity inside the recipient country, but merely provide countries with more goods. Such aid can be instrumental in providing much needed resources to the poor and in improving the standard of living but do not, however, translate to a stronger or more productive export economy. Aid strategies such as capital goods or expert consultants who work to increase domestic productivity should not be grouped into this category, as this aid aims to increase productivity within the country instead of merely providing goods. (This, to me seems a whole like giving a person a fish and teaching them how to fish and therefore all help is not harmful but some help can be perceived as having long term beneficial effects.) Windfall income would supply a country with the tools to develop and create economic growth. Both foreign aid and natural resources, however, have systematically failed to produce positive economic effects. The curses also carry negative political consequences. As Ross (1999) states: “Windfalls produce myopic disorders among policymakers that can weaken state institutions that are necessary to foster long-term economic development.”8 This prediction plays out in the literature, with authors finding that both aid and oil leads to a decline in the quality of economic institutions.


Both foreign aid and natural resources are gifts or windfalls to a developing economy. A natural resource gift derives from nature. Foreign aid is a gift from first-world donors. A country that is endowed with easily extracted minerals has a huge pool of potential income which they can choose how quickly to use. The extraction process has very little interaction with the nonresource sector of the economy, especially in poor countries where almost all of the skilled labor and capital needed for extraction comes from abroad. Developing countries endowed with natural resources court international corporations, typically from China, Europe, or the United States, to provide this labor and capital.

Discovering and exploiting natural resources, such as oil, can generate incredible amounts of income. Increasing production, however, typically results in stagnation or contraction of non-resource export sectors. Natural resource exportation inflates a nation’s currency, making domestically produced goods less competitive in international markets. This process is known as Dutch Disease.

Foreign aid functions similarly. While oil and other resources can be classified as gifts from nature, aid is a gift from first-world donors. Influx of government revenue is expected to boost the performance of the economy. Much like oil, donated goods and funds from abroad are not earned by an economy. Western donors either produce goods and ship them to poor recipient nations or send money to furnish public goods. While this encourages productivity in Western economies, it floods the recipient country with goods that are essentially free. Inflows discourage manufacturing by negatively affecting a country’s competitiveness. Effects on the country’s economy can be significant.

Neither aid nor resource income are tied to an economy’s productive capacity.Rather, foreign aid and natural resource boons can be considered windfalls. In this paper, both aid and resources are ʻcursedʼ because neither are earned. Windfall income creates adverse macroeconomic effects that limit competitiveness. Export-oriented non-resource sectors such as manufacturing shrink due to high domestic prices and currency overvaluation, while non-tradable goods such as services see steady growth fueled by an artificially large supply of domestic wealth.Foreign Aid Curse

Foreign aid has a long track record. The biggest upside appears to be the injection of large sums of money into developing countries otherwise gripped by poverty, war, and conflict. That money should, in theory, improve lives and raise people out of poverty, leading to sustainable growth and development. The unfortunate truth, however, is that foreign aid has often presented more challenges than opportunities to aid-receiving countries (Ear, 2013; Kennedy, 2004). There have been small improvements across the globe, from reducing poverty to slowing population growth to curing and preventing diseases, but the impact from aid has not been proportionate to the amount of money donated.

Foreign aid’s biggest downside is that frequently there is no clear, effective system put in place to hold aid recipients and their governments accountable for resources illegally taken from public sector coffers—a long-standing, and still very present, trend from Asia to Africa to Latin America/Caribbean to Europe. Unfortunately, the absence of that system reinforces social inequities and perpetuates cycles of political abuse that has led to a sophisticated new form of authoritarianism—one that empowers the elite few, while keeping a majority of people in abject poverty. Some 30 years ago Bovard (1986) argued convincingly that the success of foreign aid is often measured by intentions, not results. Using the U.S. as one example, Bovard (1986) indicated that “[F]oreign aid has routinely failed to benefit the foreign poor…[and] the U.S.


Agency for International Development [USAID] has dotted the countryside with ‘white elephants’…the biggest…of them all—a growing phalanx of corrupt, meddling, and overpaid bureaucrats” (p. 1).

It seems that foreign aid might create perverse incentives and undermine the development of sound institutions in the recipient countries in part because large amounts of aid delivered to low-income countries with poor institutions and governance can create a cycle of aid dependence where the recipient government begins to rely considerably on foreign sources to perform key operational and fiscal tasks. Alternatively, it could refer to a situation where the recipient government is discouraged from expending any efforts towards inducing development because it anticipates that foreign assistance is on the way. Indeed, foreign aid supplies large amounts of unearned capital to governments in a windfall-type manner (Nager, 2013).Such behavior is essentially motivated by the fact that recipient governments continue to receive development assistance even if they have made no concerted efforts to effectively utilize received funds. In fact, such guarantees can potentially induce ‘moral hazard’ behavior on the part of recipient governments, where they may pursue unproductive policies that are more likely to encourage agencies to continue funding. For example, the anticipation of charity in the case of a large-scale disaster might prompt governments to diminish protection (Buchanan, 1975; Coate, 1995) since “… current decisions of economic agents depend in part upon their expectations of future policy actions” (Kydland & Prescott, 1977, p. 474).

Even the World Bank has conceded that in countries with weak institutions, “the Bank’s interventions may have delayed the development of effective, self-reliant cadres and institutions” (Kapur, Lewis, & Webb, 1997, volume 1, p. 421). The essential problem with this intervention is that there are no consequences associated with poor efforts from the recipient government. As a result of this phenomenon, beneficiary governments have weak incentives to efficiently utilize received funds, and generate sustainable development.

In the recipient country, aid dependence can impact institutions by weakening institutional capacity, siphoning off scarce talent from the bureaucracy, diminishing accountability, encouraging rent seeking and corruption, fomenting conflict over control of aid funds, and alleviating pressures to reform inefficient policies and institutions. For instance, a resident of Equatorial Guinea described his country’s neglect of facility maintenance: “Everything is given to them; they don’t take care of anything and don’t have to” (Klitgaard, 1990, p. 98). When vulnerable groups are exposed to the international relief system, the end result may be the wholesale destruction of a culture. Despite over $2 trillion provided to Africa over the last 50 years, former World Bank consultant Dambisa Moyo, a native of Zambia, indicated such aid has resulted in measurably worsened outcomes in a broad variety of areas, supporting despotism and increasing corruption and a sense of dependency in Africans (Moyo, 2009).

Similarly, Bettencourt et al. (2006) indicated that high-profile disaster relief aid to Southwestern Pacific nations appears to create an irrational incentive to do nothing to reduce risk. Foreign aid reduces the recipient countries’ incentives to invest in protection against potential natural disasters since aid receiving policy makers are likely to rely on bail-outs from the international community in the case of a large natural disaster. Relief aid rewards inaction and in the process ensures that future natural disasters will be more brutal because those nations receiving aid have done nothing to take preventive actions to prepare for future natural disasters.Another perspective also finds that aid may negatively impact countries. It seems that reductions in foreign aid, while initially difficult, may over the long run be beneficial. For example, the end


of U.S. aid—which had been generous in the 1950s—is often credited for the Korean and Taiwanese economic turnarounds of the 1960s (Rodrik, 1996). Foreign aid, it seems, has largely encouraged Third World governments and their populations to rely on hand-outs instead of on themselves for development thus again demonstrating the corrosive effects of help. Echoing this sentiment is one of the world’s best known philanthropists and rock band U2 lead singer, Bono, who said “Aid is just a stopgap. Commerce [and] entrepreneurial capitalism takes more people out of poverty than aid. We need Africa to become an economic powerhouse” (Theroux, 2013).The idea that foreign aid often hurts, rather than helps, poor people in poor countries was observed by economist and 2015 Nobel prize winner, Angus Deaton (Swanson, 2015). Deaton (e.g., 2013) observed that in order to have the funding to run a country, a government needs to collect taxes from its people. Since the people ultimately hold the purse strings, they have a certain amount of control over their government. If leaders do not deliver the basic services they promise, the people have the power to remove them. Foreign aid (especially to countries where they get an enormous amount of aid relative to everything else in that country) can weaken this connection and change the relationship between a government and its people, leaving a government less accountable to its people, the congress, or parliament. Governments that get much of their money from aid do not have to be answerable to their constituents and consequently makes them more despotic. It can also increase the risk of civil war, since there is less power sharing, as well as a lucrative prize worth fighting for. All this leads to corrosive effects and general economic decline as Deaton has observed in countries as Zaire, Rwanda, Ethiopia, Somalia, and Biafra. [To be fair, Deaton believes that certain types of health aid— offering vaccinations, or developing cheap and effective drugs to treat malaria, for example—have been hugely beneficial to developing countries.] Consistent with this analysis, Rajan and Subramanian (2005) observed that much foreign aid flowing into a country tended to be correlated with lower economic growth and that countries that receive less aid tend to have higher growth, while those that receive more aid have lower growth.

Inheritances and intergenerational transfersThat sudden, unearned wealth can have deleterious effects is well known. Nearly every

culture has some version of the axiom “from shirtsleeves to shirtsleeves in three generations,” dating back to China over 2000 years ago. The proverb describes how the first generation works hard to create a fortune; the second generation enjoys its spoils, substituting hard work with entertainment, and the third generation—with no role model to follow—squanders what remains of the fortune, relegating their children to starting the process over again. Research (Sullivan, 2013) found that 70% of an affluent family’s wealth is typically gone by the end of the second generation, and 90% is destroyed by the end of the third. Psychologists specializing in “sudden wealth syndrome” (Schorsch, 2012) acknowledge that heirs, like lottery winners, tend to squander their sudden fortune.

Having been born into money, they may also expect that their financial support will continue. The sense of cause and effect between management of their assets and returns is not inherited; it must be developed. Thus, each new family owner must develop a sense of fiduciary responsibility, an understanding of his or her role, a realistic expectation of return, an understanding of risk, and be willing to be part of relevant decisions. A strong sense of entitlement usually leads to unrealistic expectations and conflict with reality. Additionally, there is frequently a lack of personally and socially beneficial purposes guiding the use of inherited wealth. O’Neil (1997) documented how money transferred to heirs without a meaningful purpose


leads to negative character qualities, such as the inability to delay gratification, unwillingness to tolerate frustration, feelings of failure, and a false sense of entitlement.

Members of wealthy families are often concerned that their family wealth not “spoil” their heirs (Dashew, 2002) and that their children and grandchildren will “end up lazy, good-for-nothings” (Baron & Lachenauer, 2014) who do not contribute to society. Yet their children, growing up with such privilege find it difficult to develop a sense of responsibility to work to expand the family’s portfolio, or even a sense that such a task is worth doing. The family must find ways to develop values, personal responsibility, and commitment with socially useful activities.

Cornelius Vanderbilt, for instance, did not allow his children to have access to their inheritance. When he died, it is estimated that he was one of the richest men in the world. As trustee, his oldest son decided it was “their money” and gave all the heirs direct access to their inheritances. He, too, was one of the richest men in the world at his death. Some 30 years later at a Vanderbilt family reunion, there was not a millionaire in the group (Vanderbilt, 1989). It appeared that family members may have been raised to expect a certain lifestyle that can quickly deplete a family’s wealth-producing assets.

Other areasBecause of space limitations, we do not address additional areas that provide unearned

largesse resulting in detrimental effects in the long term. For example, codependence and enabling (McGrath, & Oakley, 2012), unemployment benefits (Hagedorn, Karahan, Manovskii, & Mitman, 2013), gambling and lottery winners (Hankins, Hoekstra, & Skiba, 2011), grade inflation (Felton & Koper, 2005), participation trophies (Merryman, 2013), the resource curse (Haber & Menaldo, 2011), and individuals inheriting substantial sums of money (Schorsch, 2012) could have been addressed as examples of individuals getting something for nothing and the problems associated with such factors. Such events represent a failure of using incentives appropriately.

The Problem: Moral Hazard

The notion of a moral hazard is that a party that is protected in some way from risk will act differently than if that party did not have that protection (Beattie, n.d.). The idea is that an actor has incentive to behave in an economically or socially suboptimal manner because the person does not bear all of the actual and/or potential costs of their actions. It is opportunistic behavior which takes advantage of an opportunity for personal benefit even if it is at the expense of others.

A Model for Helping: Requiring “Skin in the Game”

To mitigate the moral hazard of helping others we focus on the importance of cost sharing. To reduce moral hazard cost sharing is often used (Kuperman, 2008). The simplest and most common remedy is to require the insured to share in these costs (Pauly, 1968). Using insurance as an example, one option is a deductible, commonly used in car insurance, requiring the insured to pay a fixed amount of the cost before insurance covers the remainder. Absent a deductible, drivers would have less incentive to drive defensively or to pay for off-street parking to avoid vandalism. Another option is coinsurance, where the insurer pays only a percentage of the cost, commonly 80 percent in medical insurance. The insured’s prospect of having to pay the remaining 20 percent deters irresponsible overutilization of medical care (while the relatively


low copayment also promotes routine care to avert high-cost emergency procedures). Similarly, unemployment insurance utilizes a “reduced replacement rate,” where the insurance benefit is only a fraction of the former wage, to deter workers from fraudulently or irresponsibly getting fired (Wang & Williamson, 1999). A final option is to cap the amount of an insurance payout. U.S. bank deposit insurance is capped at $100,000 per depositor, so that larger depositors share in the cost of a bank failure and thus have incentive to avoid risky banks. This system insures most deposits, thereby averting runs on troubled banks, while still providing banks an incentive to avoid risky loans and investments. Capping is also used in unemployment insurance, by limiting its duration to increase the incentive for the jobless to look for work.

Each of these three cost-sharing strategies to reduce moral hazard—deductibles, coinsurance, and caps on benefits—are designed so that individuals have some “skin in the game.” Several examples of having “skin in the game” have been offered over the millennia. Hammurabi’s code, formulated nearly 4,000 years ago by the Babylonians, specified: “If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death” (Harper, 1904, p. 111). Other examples include the Roman heuristic that engineers spend time sleeping under bridges they have built, to the maritime rule that the captain should be last to leave the ship when there is a risk of sinking.

From these examples it is clear that the term, “skin in the game,” means having a significant commitment or stake in a venture or activity. ‘Game’ is a metaphor for actions of all types, and ‘skin’ is a simile for being committed to something through emotional, financial, or bodily commitment. The phrase implies being invested in achieving an outcome. The thinking is that putting one’s own precious resources at risk where one can potentially lose something (whether it is some form of ownership, money, property, life, or just respect) means that people have a greater stake in the success of the venture and are incentivized to exercise care and limit irresponsible risk-taking.

Those not having skin in the game have nothing to lose and therefore may more easily walk away in large part because there are fewer negative consequences to them. When decision makers have skin in the game—when they share in the costs and benefits of their decisions that might affect others—they are more likely to make prudent decisions. Skin in the game is what is sometimes called an equity investment. Equity investors are owners and owners value their property. Equity investments do not have to be large to provide incentives that generate desirable responses. Several areas where skin in the game is important are now provided.Investing

Beginning in 2005, the Securities and Exchange Commission required fund manager investment status to be filed under a statement of additional information. Beyond the symbolic benefits of showing investors that a manager has some of his or her own money in the fund (i.e., some skin in the game), there are real and measurable advantages to having the portfolio manager in the investor pool. According to Morningstar’s continuing stewardship research on funds and fund companies, on average, the more money a portfolio manager invests in a fund, the better the fund does (Benjamin, 2011). Of the funds at the highest manager investment level of more than $1 million, the average star rating is 3.5 and the average manager tenure is more than 12 years. Conversely, in funds where the manager has no money invested, the average star rating is 2.9 and the average tenure is 4.6 years.

In a recent study Kinnel (2015) looked at mutual fund manager investment levels in their own funds as of 2009. He then looked at the performance of these actively-managed funds over


the next five years and then measured each fund’s success rate, which he defined as funds that outperformed their investment category. The results showed that fund managers with a significant amount of his or her personal money (> $1 million) in the fund to do better than one with no investment at all. It is an extra incentive beyond keeping one’s joy and getting more pay.Higher education

The concept of skin in the game has also been applied to colleges and universities. For example, some universities require that faculty pay the first $50 or $100 of the cost to attend an academic conference. With this small fee, there are likely to be fewer requests to attend these “valuable” conferences. Having the faculty put some equity into the process almost surely reduces the number of boondoggle trips. In another education-related area Miller (2015) argues that President Obama’s plan for free community college will reduce the value of a college education while having an equity investment in higher education, even a small one, will provide an incentive for students to make sound decisions. Which courses should they take? How much effort should they put into their coursework? Should they attend class and pay attention? Their answers almost surely depend on whether they have equity in their education and how much.

More importantly, current federal incentives reward colleges and universities for volume (number of students enrolled and associated loan and grant monies) yet federal policy has few, if any, consequences for institutions that leave students with mountains of student debt and defaulted loans. To assist these institutions in reducing excessive and unnecessary student borrowing and debt Senator Lamar Alexander of Tennessee released a Congressional white paper on March 23, 2015 that proposes giving colleges and universities some risk sharing (or skin in the game) in which they would be held partially accountable for financial risks to students and taxpayers (U.S. Senate Committee on Health, Education, Labor & Pensions, 2015). Under these proposals, the risk of enrolling a student would be shared among all those who finance a student’s education: the student, the federal government, and now, the institution. This would ensure that colleges and universities have a clear financial stake in their students’ success, debt, and ability to repay their taxpayer-subsidized student loans.

Current and historical commentary on skin-in-the-game concepts and proposals often revolves around this idea. Former U.S. Secretary of Education Bill Bennett and coauthor, David Wilezol, wrote that each college should pay “… a fee for every one of its students who defaults on a student loan, or have a 10 to 20 percent equity stake in each loan that originates at its school” (2013, p. 54). Similarly, The Economist in 2014 indicated that “If [universities] were made liable for a slice of unpaid student debts—say 10% or 20% of the total—they would have more skin in the game.” Support for this comes from a variety of higher education observers across the political spectrum from the right-of-center American Enterprise Institute and the U.S Chamber of Commerce to the Institute for Higher Education Policy.

This would ensure that colleges and universities have a clear financial stake in their students’ success, debt, and ability to repay their taxpayer-subsidized student loans. It would encourage colleges and universities to establish appropriate admissions’ practices for at-risk or uncommitted students, motivate students to complete their degrees more quickly, and graduate students with less debt. Recent legislation sponsored by Senators Reed (D-RI), Durbin (D-IL), and Warren (D-MA) would expand this concept to some U.S. colleges that have high borrowing rates and high student loan default rates (Protect Student Borrowers, 2013).Mortgages

Every year, the U.S. Department of Housing and Urban Development, through its Federal Housing Administration (FHA), insures billions of dollars in home mortgage loans made by


private lenders, very often with low down payments. FHA mortgage insurance helps homebuyers with limited funds to obtain a home mortgage. Homebuyers with FHA-insured loans need to make a 3 percent contribution toward the purchase of the property and may finance some of the closing costs associated with the loan. As a result, an FHA-insured loan could equal nearly 100 percent of the property’s value or sales price—commonly called loan-to-value (or LTV) ratio.

Generally, mortgages with higher LTV ratios (smaller down payments) are riskier than mortgages with lower LTV ratios and a substantial body of economic research indicates that loan-to-value (or LTV) ratio is one of the most important factors when estimating the risk level associated with individual mortgages. For example, the U.S. Government Accounting Office (2005) reviewed 45 economic research papers that examined multiple factors that could be important; of these, 37 examined if LTV ratio was important. Almost all of these papers (35) found the LTV ratio of a mortgage important when estimating the risk level associated with individual mortgages. One study found that the default rates for mortgages with an LTV ratio above 95 percent are three to four times higher than default rates for mortgages with an LTV ratio of 90 to 95 percent.

More recently, Kelly (2008) analyzed a nationally representative random sample of about 5,000 FHA insured single family mortgages endorsed in Fiscal Years 2000, 2001, and 2002, observed through September 30, 2006, and samples of about 1,000 FHA loans each from the Atlanta, Indianapolis, and Salt Lake City metropolitan statistical areas in the same time period.He found that borrowers who provide down payments from their own resources have significantly lower default propensities than do borrowers whose down payments come from relatives, government agencies, or non-profits. Borrowers with down payments from seller-funded non-profits, who make no down payment at all, have the highest default rates. Additionally, borrowers who do not make down payments from their own resources tend to have higher loss given default in the small subset of loans that had completed the property disposition process. Thus, relieving the buyer of the need to contribute cash to the purchase, via a gift from an uninvolved party, raises the claim rate by 40% to 50%. Relieving the buyer of the need to contribute cash to the purchase, by a “gift” from the seller that results in a higher loan amount, raises the claim rate by an additional 38% to 50%. The extra difference in claim rates for gifts from seller-funded nonprofits is broadly consistent with an equity-based explanation, as a 25% increase in claims for a 3% decrease in equity. This research does make clear that, for whatever reason, borrowers with no “skin in the game” (and thus are aid recipients) are higher credit risks than comparable buyers who bring cash to the transaction. This research is consistent with that reported by James (2010) and Demiroglu and James (2012). In short, skin in the game matters.

Habitat for Humanity

The premier example of the importance of skin in the game is Habitat for Humanity which was founded in 1976 and has more than 400 U.S. affiliates and operates in more than 90 countries and is dedicated to eliminating substandard housing and providing low-income families with the joy and dignity of homeownership. “Sweat equity” is the single most important strategy Habitat uses to empower future homeowner families and one of the features that sets it apart from other affordable housing providers. Sweat equity to refer to the hours of labor their homeowners dedicate to building their homes and the homes of their neighbors, as well as the time they spend investing in their own self-improvement. Most importantly, by going beyond a mere financial investment in their property and physically working alongside other volunteers


and neighbors, Habitat homeowners gain a greater sense of self-worth and become more personally invested in their community (Habitat for Humanity of Broward, 2015).

Sweat equity reduces the amount of paid labor needed for a house, which in turn helps reduce cost. Having the involvement of the families themselves adds a sense of ownership to the building process, and educates the families on an entirely different level (Garafolo, 1997). Those who receive assistance from Habitat are also given the opportunity to improve their financial skills. Budget counseling, homeowner maintenance, and even predatory-lending awareness issues are addressed in offered courses. These programs are run in conjunction with home construction in order to guide new homeowners to a financially stable future. A study led by the Cox School of Business at Southern Methodist University, which was commissioned by the Dallas branch of Habitat, found that foreclosures in Habitat’s Dallas market were less than 2% in 2010. Although the report only looked at the Dallas office of Habitat, the findings mirror those found in other Habitat offices across the country, the organization says (Wotapka, 2011).

As can be seen in many of these examples, some sort of exchange is illustrated (e.g., down payment for a house; sweat for a home). On an interpersonal level, in some cases an immediate exchange for aid and assistance may not always be feasible. In these cases it may be important to highlight that the helper expects some recompense in the future. This pay back with its accompanying sense of obligation and indebtedness is more formally known as reciprocity and it is a powerful influence mechanism to which human cultures subscribe (Gouldner, 1960). Indeed, world-renowned paleoanthropologist Richard Leakey indicated “We are human because our ancestors learned to share their food and their skills in an honored network of obligation” (Leakey & Lewin, 1978, p.16). Thus, to maximize the likelihood that the favor doer will be paid back in the future he/she should invoke the reciprocity rule and not diminish the help given. These subtle reminders should occur as part of a natural and equitable reciprocal arrangement.

SummaryResearch on helping has focused primarily on the persons who give the help. In

comparison, very little research has been done on help recipients and the consequences of their receiving help. It is generally assumed that helping is a “good thing,” that should be encouraged, and that recipients are usually grateful for the help received. Help can be experienced as an expression of meaningful belongingness between the aid recipient and the helper, eliciting positive feelings, favorable self-perceptions, and gratitude (Fisher et al., 1982). Although positive response sometimes does occur following aid, research also indicates that negative reactions also occur. It can also feel like a barricade to independence drawing a sense of indebtedness (Greenberg, 1980) and loss of freedom, chronic dependency on others (Nadler & Fisher, 1986), and inducing aversive psychological states such as “reactance” (Brehm, 1966).

The receipt of aid constitutes a mixed blessing and sometimes aid beneficiaries may experience “the curse of aid” (Djankov, Montalvo & Reynal-Querol, 2008, p. 169). The worthy aims of altruism and other prosocial behavior may have socially detrimental effects and that initiatives to engage in good acts are sometimes problematic (Kalman, 2010). What is needed is a more refined analysis that examines both the possible positive and negative effects following aid on help recipients. Typically, helping is looked at from an idealistic perspective and, being idealistic, it is more a reflection of what individuals would like it to be and not necessarily reflective of what could happen. What is needed is not such a one-sided perspective but a search for unintended consequences that may create unexpected, unfortunate, and counterproductive effects.


We recognize that few people have bad intentions and agree with noted poet and literary critic, T. S. Eliot, who noted that “Most of the evil in this world is done by people with good intentions” (n. d.). However, good intentions alone are not enough to make actions moral. This paper discusses the sensitive topic of the analyzing unintended negative effects of helping others and how the failure to do so represents a disservice to the truth. It appears that every action and decision has unintended consequences, some of which are good and some not so good. Every action has both seen and unseen consequences, obvious and not so obvious effects, positive and negative, short and long-term outcomes.

Good intentions do not automatically lead to moral actions. Individuals must consider the possible negative consequences before they give and help others. If individuals’ interventions cause more harm than good, the interventions are morally problematic regardless of the loftiness of their intentions. Just because kindness and compassion sound praiseworthy people must consider the possible harm that their proposed help may cause and to stop implementing activities that can be shown to create more injury than good. Dependency, entitlement, and learned laziness are created when incentives to work are removed, yet benefits are still received. Whether the assistances come from the government, one’s parents, a rich uncle, or the lottery, the effect is the same—people will make no effort to become self-sufficient. Those who are dependent have few choices; they must accept whatever is “given” to them. An inconvenient truth illustrated in this paper is that giving people something for nothing; that is, providing unearned rewards not contingent on accomplishment, achievement, or merit fuels the likelihood that such individuals will become increasingly dependent, entitled, lazy, and privileged and, colloquially speaking, good for nothing.

The Habitat for Humanity model suggested here appears to be consistent with Nadler’s model of intergroup helping, (Nadler, 1997, 1998, 2002) which distinguishes between autonomy-oriented and dependency-oriented help. Dependency-oriented help provides a full solution to the problem, is less concerned with the recipient’s autonomy, and reflects the helper’s view that the needy cannot help themselves. In contrast, autonomy-oriented help is partial and temporary, it is aimed at empowering the helpee, and assumes that, given the appropriate tools, recipients can help themselves. Although dependency-oriented help is less self-supporting than autonomy-oriented help, it tends to have high short-term instrumentality, as the recipients manage to solve the problem at hand immediately (van Leeuwen, Täuber, & Sassenberg, 2011). To use a well-known example, giving the hungry cooked fish is dependency-oriented help while teaching them how to fish and giving them fishing rods is autonomy-oriented help (Alvarez & van Leeuwen, 2011). Giving a person a fish is a temporary palliative that in the absence of meaningful behavior on the recipient’s part is likely to impede rather than promote growth and development. Thus, providing instrumental autonomy-oriented help is advised.

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