PERVERSE INCENTIVE

-----------ooOoo-----------

In 1902 during French colonial rule, Hanoi was plagued by rats. Driven by the desire to modernise the city, the Governor-General instituted a bounty program. Citizens were paid one cent for each rat they killed. However, given the health risks, the colonial government didn’t want piles of rat corpses to be handed over to officials. So instead they paid locals for every rat tail they brought in. The tails soon became an object of value.

Colonial officials, however, began noticing rats in Hanoi with no tails. The Vietnamese rat catchers would capture rats, sever their tails, then release them back into the sewers so that they could produce more rats.

Needless to say, the bounty failed to achieve the desired results. The rat plague was now worse than before and the bounty program was cancelled.

Known as The Great Hanoi Rat Massacre, it happened in the middle of a global pandemic only a few years after Swiss-French physician and bacteriologist Alexandre Yersin linked the spread of the pandemic to rodents.

-----------ooOoo-----------

Today, the events are often used as an example of a perverse incentive, commonly referred to as the Cobra Effect.

The phrase "perverse incentive" describes an incentive structure with undesirable results, particularly when those effects are unexpected and contrary to the intentions of its designers.

This name Cobra Effect was coined by economist Horst Siebert based on an anecdote taken from the British Raj. The British government, concerned about the number of venomous cobras in Delhi, offered a bounty for every dead cobra. Initially, this was a successful strategy; large numbers of snakes were killed for the reward. Eventually, however, people began to breed cobras for the income. When the government became aware of this, the reward program was scrapped. The cobra breeders set their snakes free, leading to an overall increase in the wild cobra population.

The modern discoverer of The Great Hanoi Rat Massacre, from records and documents in Hanoi archives, Michael G. Vann, argues that the cobra example from the British Raj cannot be proven, but that the rats in te Hanoi case can be proven, so the term should be changed to the Rat Effect.

-----------ooOoo-----------

Some other examples:

Experiencing an issue with feral pigs, the U.S. Army post of Fort Benning (now named Fort Moore) in Georgia offered hunters a $40-bounty for every pig tail turned in. Over the course of the 2007–2008 program, the feral pig population in the area increased. While there were some reports that individuals purchased pigs' tails from meat processors and then resold the tails to the Army at the higher bounty price, a detailed study of the bounty scheme found different effects from perverse incentives were mainly responsible. Both the pigs' fertility rate and offspring survival rates increased under the scheme. This was due to improved nutrition made available by the feed bait used to attract the animals to hunting sites. Secondly, hunters were found to be more likely to preferentially target large males as "trophy"-quality game, while ignoring females and juveniles as targets. Removal of mature males from the population has a negligible impact on population growth, as remaining mature males can each stud many breeding sows.

In 2002, British officials tasked with suppressing opium production in Afghanistan offered poppy farmers $700 an acre in return for destroying their crop. This ignited a poppy-growing frenzy among Afghan farmers, who sought to plant as many poppies as they could in order to collect payouts from the cash-for-poppies program. Some farmers harvested the sap before destroying the plants, getting paid twice for the same crop.

In Alberta, under the Child, Youth and Family Enhancement Act, every person must report suspected child abuse to a director or police officer, and failure to do so is punishable by a $10,000 fine plus 6 months of imprisonment. However, according to criminal law professor Narayan, enforcing it would cause people to overreport, which wastes resources, and it would also create a chilling effect that prevents people from reporting child abuse observed over a period of time, as that would incriminate them for failing to report earlier. There are similar laws in other Canadian provinces.

In 2005 the UN Intergovernmental Panel on Climate Change began an incentive scheme to cut down on greenhouse gases. Companies disposing of polluting gases were rewarded with carbon credits, which could eventually get converted into cash. The program set prices according to how serious the damage the pollutant could do to the environment was and attributed one of the highest bounties for destroying HFC-23, a byproduct of a common refrigerant, HCFC-22. As a result, companies began to produce more of this refrigerant in order to destroy more of the byproduct waste gas, and collect millions of dollars in credits. This increased production also caused the price of the refrigerant to decrease significantly, motivating refrigeration companies to continue using it, despite the adverse environmental effects. In 2013, credits for the destruction of HFC-23 were suspended in the European Union.

Around 2010, online retailer Vitaly Borker found that online complaints about his eyeglass-sale website, DecorMyEyes, pushed the site to the top of Google searches and drove more traffic. He began responding to customer reports of poor quality and/or misfilled orders with insults, threats of violence, and other harassment. Borker continued writing toxic replies for a decade despite serving two separate sentences in U.S. federal prison over charges arising from them.

The 20th-century paleontologist G. H. R. von Koenigswald used to pay Javanese locals for each fragment of hominin skull that they produced. He later discovered that the people had been breaking up whole skulls into smaller pieces to maximize their payments.

In building the first transcontinental railroad in the 1860s, the United States Congress agreed to pay the builders per mile of track laid. As a result, Thomas C. Durant of Union Pacific Railroad lengthened a section of the route, forming a bow shape and unnecessarily adding miles of track.

In his autobiography, Mark Twain says that his wife, Olivia Langdon Clemens, had a similar experience:

Once in Hartford the flies were so numerous for a time, and so troublesome, that Mrs. Clemens conceived the idea of paying George a bounty on all the flies he might kill. The children saw an opportunity here for the acquisition of sudden wealth. ... Any Government could have told her that the best way to increase wolves in America, rabbits in Australia, and snakes in India, is to pay a bounty on their scalps. Then every patriot goes to raising them.