Perverse Incentives - Australia's Second Fleet
On January 19, 1790, three ships left England en route to Australia. This was the second fleet of ships to colonize Australia. The First Fleet was successful, but the cost was extremely high at roughly $8 million in today’s money. This time the English government wanted to cut costs considerably.
The private English company Camden, Calvert & King, a slave trading company, was contracted to transport, clothe and feed the convicts for a flat fee of £17 7s. 6d per head (equivalent to $3,000 in today’s money), whether the prisonsors landed alive or not. This incentive led the contractors to fill the ships with as many inmates as possible. Aboard the Second Fleet’s three ships were 1,006 convicts (928 males and 78 females). Since survival was not an issue, the contractors deliberately kept inmates under the deck chained together in close quarters, and starved them.
The First Fleet contract was primarily a “cost-plus” arrangement, where the contractor was paid for all of its allowed expenses up to a set limit. That was a wholly different incentive than the Second Fleet.
The First Fleet also had a better contractor in William Richards. He had hoped to gain the contract again in the future, so he invested in quality provisions. Even more, Richards, a humanitarian and likely an abolitionist, was personally interested in providing proper care and humanity to the convicts.
The perverse incentives for the Second Fleet led to a 900% higher incidence of death than the first. If one were to include those sick who died shortly after arrival, the second fleet’s death toll reached nearly 400 or ~40% of the initial total. Comparatively the First Fleet had a 5% death rate.
Reverend Johnson noted the conditions of the Second Fleet ship’s travellers upon their arrival to Port Jackson, Australia:
“The misery I saw amongst them is indescribable… their heads, bodies, clothes, blankets, were full of lice. They were wretched, naked, filthy, dirty, lousy, and many more of them utterly unable to stand, to creep, or even to stir hand or foot.”
The motive of the Second Fleet was to increase profits. Capitan William Hill criticized the ships’ masters saying “the more they can withhold from the unhappy wretched the more provisions they have to dispose of at a foreign market, and the earlier in the voyage they die, the longer they can draw the deceased’s allowance on themselves.”
Once word got back to England about the treatment of prisoners on the Second Fleet, the public and government was in shock. The government had already contracted Camden, Calvert & King to sail the Third Fleet the next year.
The incentive was changed to reward the number of living prisoners delivered to Australia. Subsequently, the Third Fleet successfully transported 92% of the convicts to Australia versus the 60% of the Second Fleet.
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