Definition
A financial incentive is an instrument intended to encourage a particular action by reducing its cost, increasing its financial benefit or lowering investment risk.
Human Explanation
It makes a chosen action more financially attractive.
Why it Matters
Financial incentives can stimulate investment, innovation, employment, energy efficiency and other programme objectives.
Conceptual Boundary
A financial incentive does not have to be a direct payment. It may take the form of tax relief, a preferential loan, a guarantee, a refund or other favourable terms.
Practical Perspective
Assess the incentive’s real value, requirements, administrative cost and restrictions as part of the complete financing model.