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.
The British ruled India from 1858 to 1947. During this time, they became concerned about the number of deadly cobras in the city of Delhi. The Brits implemented a simple solution to deal with the cobras. They would pay a bounty for every dead cobra to the person who presented the carcass.
This worked well. The locals started killing cobras at a fast pace to cash in the bounties.
However, it did not stop there. Some people 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 of them made a living off of simply cashing in the bounties on the cobras they bred.
When the British figured out this twist, they canceled the bounty plan. Simple enough, right? Again, this led to unintended consequences when the cobra farmers released the now worthless cobras into the city.
A lot of money paid out in bounties, yet the overall amount of cobras in Delhi increased. The only end result wasa rise in the time Brits spent watching the ground anxiously. That is the origin of the Cobra Effect. The person credited with introducing this concept is the University of Alberta professor Vikas Mehrotra. However, the one to popularize it was the German economist Horst Siebert with his book.