By Matt Agorist, Free Thought Project
In the study of economics, the definition of the term “incentive” is cut and dry and can be defined as any motivation for a person to take a certain action. Incentives drive everything from how much a person must be paid to show up for a job to a rise in the price of goods deterring certain people from buying said goods.
Because the state is largely economically illiterate and does not have to play by the rules of the market which are driven by these incentives, they will often times create negative or distorted incentives. One glaring example of a negative incentive is when the state removes all liability from a pharmaceutical company — thereby removing the incentive for the pharmaceutical company to prioritize safety when creating a product.
When incentives have unintended or undesirable effects, contrary to the intentions of its designers, this is known as a “perverse incentive.” Perhaps the most popular example of a perverse incentive is called the “cobra effect.”
Economist Horst Siebert coined the effect based on an occurrence during Britain’s occupation of India. The British government wanted to reduce the number of cobra snakes in Delhi and offered their subjects a bounty for every dead cobra they brought in. At first, large numbers of the snakes were brought in but as numbers dwindled, enterprising individuals began breeding cobras for the income.
When the state became aware of citizens breeding snakes it ended the incentive for breeders to have them, which in turn led to the opposite effect of the original incentive. Instead of reducing the population, when breeders freed their now-worthless snakes, the cobra population increased in Delhi.