The economic term ‘The Cobra Effect’ was coined by German economist Horst Siebert. The Cobra Effect refers to a situation where in, an attempted well planned and intended solution given to any problem makes the problem worse. This leads to an unintended negative consequence. This term is used to illustrate the causes of incorrect solutions in economy and politics.
This term was coined with regards to a real situation that occurred in Colonial India. There was an alarming increase in the number of venomous cobras in the city of Delhi. The British government expressed their concern regarding this issue. The government planned to offer a sum to the public for killing the cobras. A large number of venomous snakes were captured and killed by people in order to earn the reward. This served as a very successful strategy initially. But, over a period of time, people began to trick the officials by breeding cobras, expanding their numbers and later killing them to continue getting the reward from the government. Ultimately, the government became well informed about the ill happenings in hunger for the reward. Hence, they scrapped this entire plan. After scrapping of the scheme, people were no more interested in capturing, breeding and killing cobras. Therefore, they set all their wild cobra population free in the city. This in turn, increased the population of venomous cobras in the city. Thus, a planned solution to the problem lead to the problem worsening.
A similar instance occurred in Hanoi, Vietnam during the French Colonial rule. The officials designed a scheme in which people would earn a bounty upon killing rats. In order to earn the cash reward, people had to kill a rat, chop off it’s tail and provide it to the responsible officials. Over a span of time, the government noticed rats wandering in places without tails. They were surprised on being aware of the fact that, rat catchers were collecting rats, chopping off their tails and later leaving them into sewers where breeding would take place. This produced a humongous number of rats. The idea of offering a bounty on exchange of dead rat tails failed miserably.
Airbus Airlines, formally suggested their design engineers to make it’s airplane cabins quieter to ensure a pleasant travel experience. The idea was executed and cabins were made more silent than usual. Instead of making the travel more peaceful, it worsened the travel experience of the passengers onboard. People could easily eavesdrop on other people’s conversations, could hear louder noises of food and beverage trollies rolling in the aisle, babies crying on board and restroom doors opening and shutting throughout the journey. This economic decision of Airbus did not succeed.
In 1989, Mexico proposed a plan of action called – ‘Hoy No Circula’ . According to this scheme, people were debarred from using their private vehicles from 5:00 a.m to 10:00 p.m depending on the last digit of their vehicle’s number plate. This was in context of odd and even numbers. The scheme was introduced to limit the number of vehicles on road which in turn would cut down release of pollutants in the atmosphere. Instead of abiding by the norms in a fair manner, people began purchasing two vehicles in the same household, one with an even number plate and another with an odd one. This particular scheme did not serve very fruitful in the longrun.
Perverse Incentive or better known as Cobra Effect may not always be an outcome of poorly planned modules or shortsighted decisions. It may cause due to unpredictable behaviors of the recipients. A strategy planned to curb anything may cause adverse outcomes when people find the same strategy rewarding. In such contrast outcome scenarios, planning authorities may either scrap the plan or re-design it in order to get constructive outcomes.