A perverse incentive is an incentive that has an unintended and undesirable result that is contrary to the intentions of its designers. The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentionally rewards people for making the issue worse. [1] [2] The term is used to illustrate how incorrect stimulation in economics and politics can cause unintended consequences.
The term cobra effect was coined by economist Horst Siebert based on an anecdotal occurrence in India during British rule. [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. When cobra breeders set their snakes free, the wild cobra population further increased. [4] This story is often cited as an example of Goodhart's law or Campbell's law. [5]
As an incentive to preserve historical buildings, governments may designate older structures as historical properties; such classification may prevent or impede further sale or alteration of the property. Any compensation offered may be significantly less than normal commercial returns on properties or land.[ citation needed ] Examples related to this type of perverse incentive include:
In his autobiography, Mark Twain says that his wife, Olivia Langdon Clemens, had a similar experience: [41]
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.
In the social sciences, unintended consequences are outcomes of a purposeful action that are not intended or foreseen. The term was popularized in the 20th century by American sociologist Robert K. Merton.
A subsidy or government incentive is a type of government expenditure for individuals and households, as well as businesses with the aim of stabilizing the economy. It ensures that individuals and households are viable by having access to essential goods and services while giving businesses the opportunity to stay afloat and/or competitive. Subsidies not only promote long term economic stability but also help governments to respond to economic shocks during a recession or in response to unforeseen shocks, such as the COVID-19 pandemic.
An environmental tax, ecotax, or green tax is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives. One notable example is a carbon tax. Such a policy can complement or avert the need for regulatory approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes ; such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts.
In general, incentives are anything that persuade a person or organization to alter their behavior to produce the desired outcome. The laws of economists and of behavior state that higher incentives amount to greater levels of effort and therefore higher levels of performance. For comparison, a disincentive is something that discourages from certain actions.
A bounty is a payment or reward of money to locate, capture or kill an outlaw or a wanted person. Two modern examples of bounties are the ones placed for the capture of Saddam Hussein and his sons by the United States government and Microsoft's bounty for computer virus creators. Those who make a living by pursuing bounties are known as bounty hunters.
In environmental law, the polluter pays principle is enacted to make the party responsible for producing pollution responsible for paying for the damage done to the natural environment. This principle has also been used to put the costs of pollution prevention on the polluter. It is regarded as a regional custom because of the strong support it has received in most Organisation for Economic Co-operation and Development (OECD) and European Union countries, and has a strong scientific basis in economics. It is a fundamental principle in US environmental law.
The Energy Policy Act of 2005 is a federal law signed by President George W. Bush on August 8, 2005, at Sandia National Laboratories in Albuquerque, New Mexico. The act, described by proponents as an attempt to combat growing energy problems, changed US energy policy by providing tax incentives and loan guarantees for energy production of various types. The most consequential aspect of the law was to greatly increase ethanol production to be blended with gasoline. The law also repealed the Public Utility Holding Company Act of 1935, effective February 2006.
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.
Patient dumping or homeless dumping is the practice of hospitals and emergency services inappropriately releasing homeless or indigent patients to public hospitals or on the streets instead of placing them with a homeless shelter or retaining them, especially when they may require expensive medical care with minimal government reimbursement from Medicaid or Medicare. The term homeless dumping has been used since the late 19th century and resurfaced throughout the 20th century alongside legislation and policy changes aimed at addressing the issue. Studies of the issue have indicated mixed results from the United States' policy interventions and have proposed varying ideas to remedy the problem.
Campbell's law is an adage developed by Donald T. Campbell, a psychologist and social scientist who often wrote about research methodology, which states:
The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.
Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't is a book by writer and public policy researcher John R. Lott, Jr., author of previous works More Guns, Less Crime and The Bias Against Guns. Freedomnomics takes an economic look at the effects of the free market, and presents some arguments against those found in Freakonomics by Steven D. Levitt and Stephen J. Dubner. The publications The American and National Review ran positive reviews, with critic Robert VerBruggen stating that Lott "renders lots of charts, graphs and statistical analysis into clear, uncomplicated conversation."
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.
In economics, a negative income tax (NIT) is a system which reverses the direction in which tax is paid for incomes below a certain level; in other words, earners above that level pay money to the state while earners below it receive money, as shown by the blue arrows in the diagram. NIT was proposed by Juliet Rhys-Williams while working on the Beveridge Report in the early 1940s and popularized by Milton Friedman in the 1960s as a system in which the state makes payments to the poor when their income falls below a threshold, while taxing them on income above that threshold. Together with Friedman, supporters of NIT also included James Tobin, Joseph A. Pechman, and Peter M. Mieszkowski, Jim Gray and even then-President Richard Nixon, who suggested implementation of modified NIT in his Family Assistance Plan. After the increase in popularity of NIT, an experiment sponsored by the US government was conducted between 1968 and 1982 on effects of NIT on labour supply, income, and substitution effects.
The Streisand effect is an unintended consequence of attempts to hide, remove, or censor information, where the effort instead increases public awareness of the information. The effect is named for American singer and actress Barbra Streisand, whose attorney's attempt in 2003 to suppress the publication of a photograph showing her clifftop residence in Malibu, taken to document coastal erosion in California, inadvertently drew far greater attention to the previously obscure photograph. The effect exemplifies psychological reactance: where the desire to hide information instead makes its propagation more likely.
The Renewable Heat Incentive is a payment system in England, Scotland and Wales, for the generation of heat from renewable energy sources. Introduced on 28 November 2011, the RHI replaces the Low Carbon Building Programme, which closed in 2010.
Michael G. Vann is an American historian who serves as Professor of History at California State University, Sacramento. He teaches a range of world history courses, including 20th century world, Southeast Asia, imperialism, and genocide. His research specializes in the history of the French colonial empire, epidemic diseases such as the Third Bubonic Plague Pandemic, and Cold War era mass violence in Southeast Asia. Vann holds a Ph.D. in History from the University of California, Santa Cruz, where he was a student of Tyler Stovall and Edmund Burke III. His dissertation was on the history of white supremacy in French colonial Hanoi. He is a graduate of 'Iolani School in Honolulu, Hawai'i, his home town.
The Renewable Heat Incentive scandal, also referred to as RHIgate and the Cash for Ash scandal, is a political scandal in Northern Ireland that centres on a failed renewable energy incentive scheme that has been reported to potentially cost the public purse almost £500 million. The plan, initiated in 2012, was overseen by Arlene Foster of the Democratic Unionist Party (DUP), the then-Minister for Enterprise, Trade and Investment. Foster failed to introduce proper cost controls, allowing the plan to spiral out of control. The scheme worked by paying applicants to use renewable energy. However, the rate paid was more than the cost of the fuel, and thus many applicants were making profits simply by heating their properties.
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.
The Scholz cabinet is the current cabinet of Germany, led by Federal Chancellor Olaf Scholz. The cabinet is composed of Scholz's Social Democratic Party, Alliance 90/The Greens and the Free Democratic Party, an arrangement known as a "traffic light coalition" in Germany after the parties' traditional colours, respectively red, green and yellow, matching the colours of a traffic light (Ampel). This traffic light coalition-government is the first of its kind at the federal level in the history of the German federal republic.
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.