A perverse incentive is an incentive that has an unintended and undesirable result that is contrary to the intentions of its designers. The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentionally rewards people for making the issue worse. The term is used to illustrate how incorrect stimulation in economics and politics can cause unintended consequences.
The original cobra effect
The term cobra effect was coined by economist Horst Siebert based on an anecdotal occurrence in India during British rule. The British government, concerned about the number of venomous cobras in Delhi, offered a bounty for every dead cobra. Initially, this was a successful strategy; large numbers of snakes were killed for the reward. Eventually, however, enterprising people began to breed cobras for the income. When the government became aware of this, the reward program was scrapped. When cobra breeders set their now-worthless snakes free, the wild cobra population further increased. This story is often cited as an example of Goodhart's Law or Campbell's Law.
Examples of perverse incentives
Pest control campaigns
The Great Hanoi Rat Massacre occurred in 1902, in Hanoi, Vietnam (then known as French Indochina), when, under French colonial rule, the colonial government created a bounty program that paid a reward for each rat killed. To collect the bounty, people would need to provide the severed tail of a rat. Colonial officials, however, began noticing rats in Hanoi with no tails. The Vietnamese rat catchers would capture rats, sever their tails, then release them back into the sewers so that they could produce more rats. Experiencing an issue with feral pigs, the U.S. Army post of Fort Benning (now named Fort Moore) in Georgia offered hunters a $40-bounty for every pig tail turned in. Over the course of the 2007–2008 program, the feral pig population in the area increased. While there were some reports that individuals purchased pigs' tails from meat processors then resold the tails to the Army at the higher bounty price, a detailed study of the bounty scheme found different effects from perverse incentives were mainly responsible. Both the pigs' fertility rate and offspring survival rates increased under the scheme. This was due to improved nutrition made available by the feed bait used to attract the animals to hunting sites. Secondly, hunters were found to be more likely to preferentially target large males as "trophy"-quality game, while ignoring females and juveniles as targets. Removal of mature males from the population has a negligible impact on population growth, as remaining mature males can each stud many breeding sows.
Community safety and harm reduction
In 2002 British officials in Afghanistan offered Afghan poppy farmers $700 an acre in return for destroying their poppy crops. This ignited a poppy-growing frenzy among Afghan farmers who sought to plant as many poppies as they could in order to collect payouts from the cash-for-poppies program. Some farmers harvested the sap before destroying the plants, getting paid twice for the same crop. Gun buyback programs are carried out by governments to reduce the number of guns in circulation, by purchasing firearms from citizens at a flat rate (and then destroying them). Some residents of areas with gun buyback programs have 3D printed large numbers of crude parts that met the minimum legal definition of a firearm, for the purpose of immediately turning them in for the cash payout. The FASTER Act of 2021 in the U.S. was intended to aid those with an allergy to sesame in avoiding the substance by ensuring foods that contain it are labeled. However, the stringent requirements for preventing cross-contamination if the ingredients did not include sesame made it simpler and less expensive for many companies to instead add sesame to their products and label it as an ingredient, decreasing the number of sesame-free products available and creating the risk of an allergic reaction occurring from previously safe foods.