UDI-ism will modify the behavior of consumers, businesses and governments, by explicitly including Tier 2 considerations and by providing direct financial incentives that align selfish interests more closely with public benefits. Because Tier 2 considerations include long term costs and long term solutions, decisions will be less short-sighted and therefore less prone to the boom and bust cycles inherent in market systems.

a)      Monetized Tier 2 Prices Provide Direct Incentives

If consumer products such as a hamburger or a cigarette include a Tier 2 price (whether it is a label designed for consumer awareness or actually monetized into the total purchase price) which reflects the social and health costs of the products, consumers will buy fewer of the expensive products and buy more of the cheaper products in the total cost sense.

Businesses will make better products, e.g., healthier hamburgers and cigarettes, or more delicious and healthy fast food. Innovative businesses will be created and will succeed and consumers will also be better off.

If environmental and health impacts due to different types of power plants are explicitly priced in the cost of electricity produced, then green energy will get a fair price treatment in a competitive electricity market. New and cleaner power plants such as fuel cells and solar cells will also overcome the initial market barrier sooner and gain their truly economic market shares. Society will also be better off.

If air pollution effects of health costs are included as a Tier 2 price in the cost of gasoline, instead of a fixed and non-market-based gasoline tax, consumers will modify their driving habits and buy cars that are less polluting. Revenue from the Tier 2 price will go to the government in a Public Benefit Fund different from the gasoline tax and may be used to provide financial incentives for inducing manufactures to make cleaner cars and for rewarding consumers who buy and drive these cars.

Car manufacturers may earn Tier 2 incentive payments from the government by making and selling cleaner cars, and improving the average gas mileage of their entire fleet, even though their Tier 1 costs may be higher.

Car drivers, who pay higher gasoline prices but drive cleaner cars with better gas mileage, may receive tax credits. Tier 2 revenues can be used by the government to ensure fairness and to reward desirable consumer and business behavior.

Tier 2 costs, if monetized, will directly affect consumer and business decisions.

b)      Other Means to Incent Tier 2 Considerations

Before Tier 2 costs are monetized, it is possible to introduce Tier 2 considerations as financial incentives into consumer and business behavior by using other means such as taxation or social accounts. Tier 2 price stickers have already been mentioned as a way to influence consumer behavior. Tax rates that are adjustable to UDI-ism principles may be used to modify business behavior. Tax credits based on performance measures, e.g., average gas mileage or air emissions of car fleet, may be used as direct financial incentives.

Certain externalities to current business decisions can be partially internalized. An example is the cost of unemployment benefits. Firms that lay off employees in a business downturn are shifting their labor costs to the government. Firms that outsource labor requirements to foreign countries are also making the government bear the costs of unemployment and retraining. By excluding these costs in their decisions, it is likely that the decision is not optimal from the public interest viewpoint. One way to internalize these considerations is to debit a social account of the firm for part of the costs of the unemployment benefits.

Individuals could also have social accounts that give credits for Tier 2 contributions to society. For example, doing volunteer social work would earn credits in the social account. These credits would be translated into retirement benefits or medical benefits.