Ratchet effect

A ratchet effect is an instance of the restrained ability of human processes to be reversed once a specific thing has happened, analogous with the mechanical ratchet that holds the spring tight as a clock is wound up. It is related to the phenomena of featuritis and scope creep in the manufacture of various consumer goods, and of mission creep in military planning.

Ratchet effect in sociology: "Ratchet effects refer to the tendency for central controllers to base next year's targets on last year's performance, meaning that managers who expect still to be in place in the next target period have a perverse incentive not to exceed targets even if they could easily do". (Bevan and Hood 2006, p. 521)

Garrett Hardin, a biologist and environmentalist, used the phrase to describe how food aid keeps people alive who would otherwise die in a famine. They live and multiply in better times, making another bigger crisis inevitable, since the supply of food has not been increased.

The ratchet effect first came to light in Alan Peacock and Jack Wiseman's work: The Growth of Public Expenditure in the United Kingdom. Peacock and Wiseman found that public spending increases like a ratchet following periods of crisis. The term was later used by Austrian historian Robert Higgs to highlight Peacock and Wiseman's research in his book, "Crisis and Leviathan". Similarly, governments have difficulty in rolling back huge bureaucratic organizations created initially for temporary needs, e.g., at times of war, natural or economic crisis. The effect may likewise afflict large business corporations with myriad layers of bureaucracy which resist reform or dismantling.

Jean Tirole used the concept in his pioneering work on regulation and monopolies. The ratchet effect can denote an economic strategy arising in an environment where incentive depends on both current and past production, such as in a competitive industry employing piece rates. The producers observe that since incentive is readjusted based on their production, any increase in production confers only a temporary increase in incentive while requiring a permanently greater expenditure of work. They therefore decide not to reveal hidden production capacity unless forced to do so.

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