When Incentives Go Wrong: The Cobra Effect

A story goes that during their colonial rule of India, the British rulers were unhappy with the number of venomous Cobra snakes rolling around the streets of the capital Delhi.
They wondered- how could we get rid of these snakes?
They followed a financial route- offering a bounty for every dead cobra presented to the authorities. This seems perfectly rational- under colonial rule the natives were not exactly the most well off or comfortable people, so most would certainly be willing to kill snakes in exchange for payment. And the British were right, for a while- the number of cobras on the streets decreased initially.

But of course, we wouldn't be recalling this story if nothing went awry. After a while the British found that more cobras were on the streets, despite the same number, if not more, of Indians presenting them dead cobras. What was happening?

The answer was simple but ingenious. The natives were offered financial incentive to kill snakes for the British- but they were now not just from the streets of Delhi, but from farms- cobra farms specially created by the locals to provide a supply of cobras that could be killed and then exchanged for money. Of course some of these cobras managed to escape the farms and go onto the streets, explaining the lack of drop in number despite the incentive program.

This is an example of the Cobra Effect (named after this story)- the name given to a situation in which an attempted solution to a problem makes the situation worse rather than better.
Want to see a modern day example of the Cobra Effect? Check out the article on how it affected Mexico City here.