Perverse incentive

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The phrase "perverse incentive" is often used in economics to describe an incentive structure with undesirable results, particularly when those effects are unexpected and contrary to the intentions of its designers. [1]

Contents

The Indian cobra Indiancobra.jpg
The Indian cobra

The results of a perverse incentive scheme are also sometimes called cobra effects. This name was coined by economist Horst Siebert based on an anecdote taken from the British Raj. [2] [3] 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. [4] [5]

Examples of perverse incentives

Electoral systems

Pest control campaigns

Community safety and harm reduction

Environmental and wildlife protection

Historic preservation schemes

Healthcare cost control

Humanitarian and welfare policies

Promotional schemes and public relations

Returns for effort

In literature

In his autobiography, Mark Twain says that his wife, Olivia Langdon Clemens, had a similar experience: [44]

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.

See also

Related Research Articles

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<span class="mw-page-title-main">Incentive</span> Something that motivates individuals to perform

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<span class="mw-page-title-main">Drug rehabilitation</span> Processes of treatment for drug dependency

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The overjustification effect occurs when an expected external incentive such as money or prizes decreases a person's intrinsic motivation to perform a task. Overjustification is an explanation for the phenomenon known as motivational "crowding out". The overall effect of offering a reward for a previously unrewarded activity is a shift to extrinsic motivation and the undermining of pre-existing intrinsic motivation. Once rewards are no longer offered, interest in the activity is lost; prior intrinsic motivation does not return, and extrinsic rewards must be continuously offered as motivation to sustain the activity.

In the healthcare industry, pay for performance (P4P), also known as "value-based purchasing", is a payment model that offers financial incentives to physicians, hospitals, medical groups, and other healthcare providers for meeting certain performance measures. Clinical outcomes, such as longer survival, are difficult to measure, so pay for performance systems usually evaluate process quality and efficiency, such as measuring blood pressure, lowering blood pressure, or counseling patients to stop smoking. This model also penalizes health care providers for poor outcomes, medical errors, or increased costs. Integrated delivery systems where insurers and providers share in the cost are intended to help align incentives for value-based care.

<span class="mw-page-title-main">Deinstitutionalisation</span> Replacement of psychiatric hospitals

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<span class="mw-page-title-main">Air source heat pump</span> Most common type of heat pump

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A gun buyback program is one instituted to purchase privately owned firearms. The goal of such programs is to reduce the circulation of both legally and illegally owned firearms. A buyback program would provide a process whereby civilians can dispose of illicitly owned firearms without financial loss or risk of prosecution. In most cases, the agents purchasing the guns are local police.

An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. Incentive programs are particularly used in business management to motivate employees and in sales to attract and retain customers. Scientific literature also refers to this concept as pay for performance.

<span class="mw-page-title-main">Pig farming</span> Raising and breeding of domestic pigs

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<span class="mw-page-title-main">Negative income tax</span> Proposed tax reform

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Capitation is a payment arrangement for health care service providers. It pays a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care. The amount of remuneration is based on the average expected health care utilization of that patient, with payment for patients generally varying by age and health status.

<span class="mw-page-title-main">Lunatic asylum</span> Place for housing the insane, an aspect of history

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A bug bounty program is a deal offered by many websites, organizations, and software developers by which individuals can receive recognition and compensation for reporting bugs, especially those pertaining to security exploits and vulnerabilities.

<span class="mw-page-title-main">Rodent farming</span> Agricultural process of raising rodents

Rodent farming is an agricultural process in which rodents are bred and raised with the intent of selling them for their meat. They are often categorised in a sub-category of livestock known as micro-livestock, due to their small size. Rodents have been used as food in a wide range of cultures, including Hawaiian, Vietnamese, French, Indian and Thai.

<span class="mw-page-title-main">Great Hanoi Rat Massacre</span> Pest control campaign in Hanoi, French Indochina.

The Great Hanoi Rat Massacre occurred in 1902, in Hanoi, Tonkin, French Indochina, when the French government authorities attempted to control the rat population of the city by hunting them down. As they felt that they were making insufficient progress, and due to labour strikes, they created a bounty programme that paid a reward of 1¢ for each rat killed. To collect the bounty, people would need to provide the severed tail of a rat. 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.

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Further reading