When the British colonial government in India tried to solve a cobra problem they offered a bounty for every dead snake. What happened next became one of the most famous lessons in economics - and explains why so many policies fail because they don't take account of incentives.
In an attempt to reduce the number of venomous cobras in Delhi, the authorities introduced a reward for every cobra killed and handed in. At first, the policy appeared to work: dead cobras were brought in and payments were made. However, local entrepreneurs quickly realised there was easy money to be made. They began breeding cobras specifically to kill them and claim the bounty.
When the government discovered the scheme and cancelled the programme, the breeders were left with thousands of now-worthless snakes. Rather than keep feeding them, they simply released the cobras back into the wild. The cobra population, which had been temporarily reduced, ended up larger than it was before the bounty was introduced.
This episode became known as the “Cobra Effect” - a textbook example of perverse incentives. By creating a financial reward for dead cobras, the government unintentionally created a market for live ones. The policy did not account for how people would respond to the incentive it created.
The same pattern appears whenever governments try to engineer outcomes through crude rewards or punishments without understanding how individuals will adapt. Good intentions are not enough. When policy ignores human ingenuity and self-interest, it often produces the exact opposite of what was intended.