It is often said that no government is ever going to be as smart as the people scheming against them. Whatever incentive scheme is introduced no matter how clever it is, people will find a way to beat it. And hence, these incentives which are supposed to act as a solution to a problem works against it. In Economics, we call it ‘Cobra Effect’.
So, what exactly is Cobra Effect ?
We call it Cobra effect simply because this effect originated from a situation where minimizing the population of Cobras was the agenda.
During colonial times, British government wanted to decrease the population of venomous cobra snakes and hence offered a reward for every dead snake. But the opposite happened, Indians started breeding more snakes in greed of more income. When British government realised this, they canceled the incentive and as a result the breeders set the snakes free which led to more population rise. In simple terms, Cobra effect is coming up with solutions that actually worsens the situation.
Cobra effect was witnessed in many other situations as well, in Vietnam a similar incident happened. Here, it was rats instead of snakes, people were supposed to present the tails of rats to prove that the rats are actually dead. Soon the British officials started noticing rats with no tails. What people were doing was that, they used to chop off the tails and put the rats at one place where they would procreate and produce more of them which increased the income of the rat catchers. Hence, the incentive was again used for the bad.
There are tons of example to prove that this phenomenon actually exists. One can be taken from Afghanistan where farmers were given incentive to shift from producing opiums to other crops. Soon, many farmers started producing opium so as to get the incentive of shifting and that is how the plan backfired.
Applying it to the current situation. Government introduced odd-even formula to reduce pollution in our country. The scheme simply implies that on odd days, people with odd-numbered cars are allowed to drive and vice-versa. But again, the plan can backfire with people buying more cars with both types of number-plates.
It is very similar to the ‘Streisand Effect’ which says that when we try to hide/remove any kind of information, it rather than becoming unpopular, gets publicized a lot (used for Internet, usually ). You can read about it’s instance here.
Coming back, so the incentive schemes which are employed for our good, is sometimes misused by us. I don’t see any solution for this. People just need to be a little more co-operative, that’s the only thing which will ensure that the schemes work appropriately.