Freakonomics Radio Podcast: the Cobra Effect

Freakonomics Radio Podcast: The Cobra Effect

The Perverse Consequences of Incentive Schemes

Government regulations and incentive systems designed to solve a problem can intermittently lead to irrational responses by the society, ultimately causing opposing outcomes than the underlying objective of the system itself. Adverse effects of several bounty programs as well as failure of the license plate regulation in Mexico are illustrations of this contradiction.

Irony of Anti-Pollution Policy in Mexico

To deal with the uprising concern of air pollution in Mexico, authorities established a policy that limited drivers to use their car one day a week based on the car’s license plate digits. The intent behind this was to encourage carpooling and public transportation. However, instead drivers purchased additional less eco-friendly cars with different plates so that they could drive on multiple days. Consequently, air pollution level in Mexico increased.

Inadvertency of Bounty Systems (The Cobra Effect)

In Colonial India, in an effort to decrease the cobra population, British Government offered a cash reward for each dead cobra. Adversely, this incentivized individuals to breed additional cobras to claim bigger cash earnings. Upon realizing this, the government ceased the bounty system, causing breeders to release unclaimed cobras, which multiplied, and subsequently increased the overall cobra population. Similar issues arose from bounty systems in Hanoi, to exterminate rat infestation in sewers, and in Georgia, to control pig population in Fort Benning.

Unintended Consequences

These examples emphasize that regulations and systems with quick economic benefits can often trigger society to overlook primary goals and instead craft methods to cheat the system, eventually exacerbating the problem itself.