The use of financial incentives to prevent unhealthy behaviors: A review

Behaviors that are putting people's health at risk are widespread and some of them are on the rise. Some of these behaviors can be prohibited or prevented by taxation. But financial incentives such as conditional cash transfers are also increasingly proposed and tested to discourage such behaviors, in domains as varied as HIV/AIDS, drugs, alcohol, smoking, and obesity. This paper presents the theoretical justification for using such incentives, distinguishing between the price, income effects, and the nudge effects. The growing literature about the effectiveness of financial incentives to prevent undesirable behaviors is reviewed in detail for each type of harmful behavior. Finally, the paper discusses the long-term sustainability of such incentives, a key issue if they are to be scaled up beyond pilot programs and research projects. The current evidence on whether such incentives have an impact after they are discontinued is mixed. Some design features, like lotteries or commitment devices, could induce savings as well as increase effectiveness, therefore improving sustainability.