Perverse incentive

A perverse incentive is an incentive that creates an unplanned and unwanted result.  The outcome is not helpful or contrary to the interests of the incentive makers.  Perverse incentives are a type of unintended consequences. The results are sometimes called cobra effects. People are told to make the problem worse.  Horst Siebert, an economist used this term in 2001. At the time, he was talking about an anectote of the British Raj. The government was concerned that there were too many cobras in Delhi. So it offered a reward for every dead cobra. At first, this strategy was successful, and the number of snakes decreased. Later, peopel saw that they could breed cobras, because it would give them extra income.Brickman, Leslie H. (2002). Preparing the 21st Century Church, p. 326. When the government became aware of this, the reward program was stopped, and the cobra breeders set their snakes free, leading to an overall increase in the wild cobra population. Cited in Brickman, p. 326.

 Other examples 
 In Thailand, the Bangkok police had the problem of too many small mistakes by its officers.  The police tried to solve the problem by using tartan armbands as a badge of shame.  Instead, the armbands were treated as valuable collectables. Since 2007, the Bangkok police has tried using pink armbands with the cute Hello Kitty cartoon character.Myndans, Seth. "Cute Kitty Is Pink Badge of Shame in Bangkok," New York Times, August 25, 2007; retrieved 2012-6-23.
 In Vietnam during the colonial period, Hanoi had the problem of too many rats.  The French tried to solve the problem by paying for dead rats.  This was intended to bring down the number of rats. Instead, it led to the breeding of rats.Michael G. Vann,  "Of Rats, Rice, and Race: The Great Hanoi Rat Massacre, an Episode in French Colonial History,"  French Colonial History, Vol. 4, 2003. pp. 191-203. doi:10.1353/fch.2003.0027; retrieved 2012-6-23.

Related pages
 Conflict of interest
 Invasive species
 Moral hazard
 Tragedy of the commons

References

Category:Economics