COBRA EFFECT
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When the British ruled India, bureaucrats in Delhi concerned about the proliferation of venomous cobras in the city.
So they devised a plan to reduce the cobra population.
They started to offer bounty for every dead cobra.
Initially the plan worked really well.
After sometime, some savvy locals developed a business model:
Breed cobras
Chop of their heads
Turn in cobra heads and collect bounties.
When the government became aware of this, the reward program was scrapped. When cobra breeders set their now-worthless snakes free, the wild cobra population further increased
An incentive designed to reduce the cobra population actually increased it.
Based on this anecdote German economist Horst Siebert coined the term "Cobra Effect".
The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentionally rewards people for making the issue worse. The term is used to illustrate how incorrect stimulation in economics and politics can cause unintended consequences.
Once you internalize this framework, you see it all around you and in your organization.
Reference:
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