Police unions should be self-insured, backed by their pensions. Without direct incentive there is no incentive.

It doesn't even need to be a punitive like $150k. An equitable $5k to compensate for time wasted, legal fees, and emotional stress from being kidnapped would suffice to realign incentives.

Good point. Just enough so that it smarts but doesn't have to be punitive.

In America, there really isn't a concept of false arrests. There is a "not guilty" verdict but not an "innocent" verdict. If you're forcing states to pay out in the case of not guilty verdicts, then you're introducing a whole new host of bizarre incentives.

That is akin to not being able to accept the null hypothesis in statistics, as we assume innocence ant try to prove guilt (with the p-value of "a reasonable doubt"). While we should not explicitly disincentivize negative results, this doesn't mean that we shouldn't penalise p-hacking.

There are already incentives to arrest as many people as possible.

Exactly. Prisons are just like hotels: keep them constantly full and money will keep coming, no matter from where.

Then we'd need laws for scamming the false arrest system. But people snorting bird shit would be hilarious.

This reminds me of the cat urine South Park episode : https://www.youtube.com/watch?v=2GIiOsuDRFk

I don't know why...

America has that concept encoded in the fourth amendment and the law built up around it.