Misconceptions of Incentive Programs

incentive programs

Many government policy blunders result not from intentional malice or differing worldviews, but from a misunderstanding of human nature and its response to incentives.

On its surface, central planning and social engineering seem like simple and obvious solutions to society’s problems. If we can all agree that it is preferable to act in certain ways, perhaps government could reward this positive behavior and punish deviation from it.

Even if there wasn’t any principled opposition to government social engineering, it would still be unwise to assume that a simple incentive or disincentive program will achieve the desired results. In fact, sometimes it achieves the opposite effect, which has since been labeled by economist Horst Siebert as “the Cobra effect.”

The Cobra Effect

This term is derived from its most popular example, dating back to colonial India. An incentive program was established in Delhi to reduce the local cobra population. This program placed a bounty on cobras, therefore raising the value of dead cobras. It was expected that this would encourage the citizens of Delhi to take an active effort in killing cobras, which would reduce their population.

Unfortunately, this program backfired. When the demand for a particular good increases, so do any precursor goods that are needed to produce that final good. Since live cobras are a precursor to dead cobras, some Delhi citizens began breeding cobras with the goal of killing them and claiming the bounty. When this became known, the program was terminated. Now that these cobra farmers had no use for live cobras, they set them free, leading to a much larger cobra population than there was before the program began.

The Cobra Effect, But With Pigs

The bounty against wild pigs in Fort Benning, Georgia is a more recent example of the Cobra effect. A study found that after the period of this bounty, the wild pig population actually increased between 23 and 130%. The study theorizes that this was due to an increase in food caused by baiting.

Populations normally increase until they reach a peak known as the Malthusian trap, when there is not enough food to sustain sustain such a large population. With an increase in baiting and food availability, the wild pig population was able to increase. And with hunters targeting the wild pigs of “trophy” quality, this left more food available for the segment of the population that would reproduce more.

The Cobra Effect, But With Gas

An incentive policy by the United Nations failed in a similar manner. To cut down on greenhouse gases, they rewarded companies for properly destroying certain pollutants. The more dangerous the pollutant, the greater the reward. One of these more dangerous pollutants was the gas HFC-23, a byproduct of HCFC-22, which is commonly used for air conditioning.

Before the program, HFC-23 existed primarily as a result of the demand for HCFC-22. With the incentive program, HFC-23 became much more valuable, to the point that companies were overproducing HCFC-22 (which is also a pollutant) to create more HFC-23, so that they could properly destroy it and profit from the incentive program.

Once again, a program that set out to reduce the prevalence of something actually led to the opposite result.

Death by Seat Belt

Advocates for mandatory seat belt laws will cite the tremendous amount of evidence that drivers are more likely to survive a car accident if they wear a seat belt. And they’re not wrong.

However, the program’s goal must be kept in mind. Gun control advocates focus on gun violence, when they should focus on all violence. When looking at seat belt laws, advocates should look at total traffic deaths, not just driver deaths.

A study by Sam Peltzman found that mandatory seat belt laws do not have any substantial effect on reducing total traffic fatalities. While drivers were indeed more likely to survive a car crash due to their seat belt, traffic accidents actually increased, resulting in a greater number of pedestrian and cyclist deaths. Despite this law achieving its intent to lower driver deaths, it had an unintended consequence of increasing pedestrian deaths.

The Difficulty of Incentive Programs

In his book, Losing Ground, Charles Murray goes so far as to say that social programs cannot produce their goals. Using a hypothetical smoking disincentive program, he explains the difficulty of designing it so that it will incentivize people to quit smoking, while not incentivizing people to start smoking so that they can quit. Just as wheat is valuable because it is a precursor to bread, smoking is valuable because it is a required precursor to quitting smoking.

Human nature is incredibly difficult to understand, and incentive programs take a far too simplistic approach, ignoring the many extra incentives and disincentives they are creating.

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Nathan A. Kreider is author of the Misconceptions column for Being Libertarian, and has written for the Austrian Economics Center, the Foundation for Economic Education, and the Liberalists. He also occasionally publishes a blog and video content, including short book reviews, which can be found on his website, nkreider.com. He can be contacted by email via [email protected]