The Cobra Effect is a term that describes when an intervention meant to solve a problem contributes to making it worse.
Incentives have always been recognized as powerful tools to drive desired outcomes since they can potentially shape individual and collective behavior.
What happens when King Cobras face the King of Britain? Unintended consequences. The details are spotty, but the story of the Cobra Effect lives on.
Regardless of its historical accuracy, it is a good anecdote for understanding the concepts of incentives and unintended consequences.
This article will examine the Cobra Effect – a cautionary tale showing how misaligned or poorly designed incentives can backfire with unintended and sometimes negative consequences.
Origin of the Cobra Effect
The British ruled India from 1858 to 1947. During this time, they became concerned about the number of deadly cobras in Delhi.
The Brits came up with a simple solution – they would pay a bounty for every dead cobra.
This worked well. The locals started killing cobras quickly to cash in the bounties.
However, some went beyond the intention of the bounty and instead started breeding their own cobras.
Because they were inexpensive to breed, the cobras became a way to sustain families. Many made a living by simply cashing in the bounties on the cobras they bred.
When the British figured out the twist, they canceled the bounty plan. Simple enough, right? Again, this led to unintended consequences when the cobra farmers released the newly-bred cobras into the city.
The bottom line – a lot of money was paid out in bounties, yet the overall amount of cobras in Delhi increased.
That is the origin of the Cobra Effect. The University of Alberta professor Vikas Mehrotra is credited with introducing this concept. However, the one to popularize it was the German economist Horst Siebert with his book.
Other Examples of the Cobra Effect
Now, let’s dive into a few other examples of the unintended consequences of incentives:
The Eradication of the Hanoi Rat in 1902
In the 19th century, during French colonial rule, Hanoi faced a severe issue of rat infestations. The rats were causing havoc on crops and spreading disease.
The French government, under pressure to put an end to this problem, came up with a bounty system to bring the situation under control.
They announced that anyone who brought in a rat tail was eligible to collect a bounty.
The citizens were motivated and delivered thousands of rat tails.
However, there were issues of rats without tails all over the city, which concerned the authorities.
However, some Vietnamese saw the bounty system as an opportunity to start a rat farm. They would cut off the tail, but the rats were kept alive to breed. The system didn’t succeed in ending rat infestations and, in the end, increased the rat population.
How Banning Cars Led to More Cars in Mexico
Sometimes, seemingly reasonable interventions can lead to counterproductive behavior, like what happened in Mexico.
In 1989 the government introduced the Hoy no Circula (“No driving today”) to curb air pollution from traffic.
The government banned all drivers from using their vehicles one weekday per week on a rotating basis.
For example, with this regulation, cars with plate numbers that end with 0 or 1 were not allowed to drive on Monday, while those with 2 or 3 were not allowed to drive on Tuesday, and so on.
However, the program failed since many residents purchased a second car to use on the days their main vehicle was banned.
This led to more cars on the road, traffic congestion, and increased air pollution.
You may also like: The Disposition Effect
What Are the Lessons From the Cobra Effect?
The Cobra Effect teaches us several lessons, including:
Incentives Can Have Unintended Consequences
The Cobra Effect is a reminder to take the time to weigh the pros and cons of a decision, no matter how well-intentioned it may be, before executing it.
Incentives can backfire and lead to negative outcomes contrary to their original purpose.
Unforeseen Behaviors Can Emerge
Sometimes people can exploit loopholes, engage in strategic gaming, or exhibit behaviors that will impact the desired outcomes when they respond to incentives.
Regular Monitoring and Adaptability Are Important
When you create an incentive system, it should be subject to continuous evaluation, feedback, and adaptation. Only that way can one address unforeseen consequences and ensure that incentives remain aligned with the desired outcomes.
Ethical Considerations Matter
Ethical guidelines should be the basis of the design of incentive programs so that they don’t encourage unethical behavior or create perverse incentives that may harm individuals/society.
Context-Specific Approaches Are Necessary
It is essential to recognize the unique circumstances and dynamics of every individual situation to tailor the incentives to a specific context in line with the desired behaviors.
Learning From Past Failures Is Crucial
The Cobra Effect is a valuable lesson for organizations, policymakers, and individuals. It emphasizes the need to acknowledge and learn from past mistakes and failures to avoid a repeat in the future.
Takeaway: The Cobra Effect Highlights How Incentives Can Backfire
The Cobra Effect is a cautionary tale highlighting how well-intentioned incentives can backfire and lead to unintended consequences.
The examples illustrate the importance of carefully weighing the pros and cons of an incentive before making a decision.
Learning from past failures is crucial in creating effective incentives for desired behaviors.
