Perverse Incentives and The Cobra Effect

Here’s an interesting story. During British Colonial Rule in India. Cobras were everywhere and, in an attempt to control the population, the government announced a bounty for every dead cobra. At first, this worked—people killed cobras and claimed rewards. So, the question is, what could possibly go wrong?  Well, some individuals realized they could breed cobras just to collect the bounty. People were growing and killing cobras left, right and center. When the authorities discovered this trick, they cancelled the program. The result? The last batch of cobras that were supposed to be killed were left loose and the cobra population turned out to be bigger than before, which meant the program worsened the problem. This is a Perverse Incentive.

Perverse Incentives occur when a policy or reward system unintentionally leads to unintended and often harmful consequences. They are often the result of poorly designed policies, where people respond to the incentive logically but counterproductively. This is one of the reasons why it takes a long time to implement rewarding policies, as the organization needs to work out and block all the ways humans could exploit the policy. This also shows the innate nature of most humans: we are driven by self-interest.