Starting a Local Government Policy Innovation Program

A water company has customers who don’t pay their bills. A month goes by, then another, and another. The late fees accumulate.

“This is your last warning,” the water company writes. “If you don’t pay your balance and late fees, we’ll have no choice but to shut off your service.”

Nothing.

Eventually the utility sends out a service technician to turn off the water. The customer rushes down to the utility office and pays the balance and the penalties. The utility sends the technician out a second time to restore service.

This is one of those situations where everybody loses. The customer, usually poor, ends up paying steep penalties. The utility company has to make two unnecessary service calls.

It’s the kind of phenomenon that fascinates Dan Ariely Ph.D. ’98, best-selling author, professor in the Sanford School, and James B. Duke Professor of behavioral economics. In fact, Ariely is teaching a new course this fall built around solving just such intractable problems. Fifty graduate students from Sanford and the Pratt School of Engineering are enrolled.

Teams of students in the yearlong “Behavioral Economics for Municipal Policy” course will have the opportunity to consult with North Carolina municipalities on problems like the one involving the water utility. The problem is based in reality: Durham’s own water company sought help for the dilemma from Ariely’s irreverently titled Center for Advanced Hindsight.

The course is part of a broader program Sanford is launching on local government policy innovation. The plan is to continue to partner with local governments under varied innovation-related themes. The main components of the program are a course for students, client-based projects where students design and test novel solutions, and skills-building workshops and training for local governments. Next up for the program: design thinking.

Ariely says the first semester of the municipalities course will focus on social-science research and behavioral economics. In the second semester, teams of students will get to apply what they’ve learned by working directly with the municipalities on what he calls “behavioral interventions.”

The behavioral economist, whose books include Predictably Irrational: The Hidden Forces That Shape Our Decisions and The (Honest) Truth About Dishonesty, is an iconoclast in the economics field. That’s because he studies how people actually behave in the marketplace, as opposed to assuming logical behavior, a tenet of economic theory.

As part of Ariely’s course, Sanford held its first Local Government Policy Innovation workshop in September with seventy local officials from thirty North Carolina cities, counties, and town governments attending. Participants are now submitting proposals for student projects. The response was enthusiastic; one Durham leader said the workshop was “the most meaningful interaction I have ever had with Duke University.”

Ariely is curious to see what problems the municipalities bring to class. It’s likely that, as with unpaid water bills—which the center is still working on—the problems facing local governments will not be unique to central North Carolina. He hopes municipalities everywhere can employ solutions that emerge from the class.