A frozen fish processor had trouble selling a new line of frozen fish because customers said the fish tasted “flat”, tasteless, unpalatable. The company tried various different solutions including holding the fish alive in tanks until just before processing, but nothing worked. In the end they found the answer. They put a predator in the tank with the fish to keep them moving around, retaining their vitality.
Having something at stake, having an incentive, can provide a powerful control, perhaps the most effective type of control. But incentive controls are also quite easy to get wrong, and they can go badly wrong.
During the Raj – the British rule in India – an attempt was made to control the population of cobras that was plaguing the city of Delhi. The colonial government offered a bounty for every dead snake brought to them. Initially, it was successful: people were bringing in cobras that they had killed and there appeared to be fewer of them around. However, the stream of dead cobras brought in, and the money paid out, did not diminish over time, instead they increased.
Later investigation revealed what had happened: people realised that dead cobras were a good source of income so they started breeding them. It was also easier to kill captive cobras than to hunt them. The colonial government eventually cottoned on to the scam and cancelled the programme. This left the clandestine breeders with a lot of unwanted cobras that they then released into the city, increasing the problem that the programme had been set up to address. The programme had rewarded people for making the situation worse – an outcome now referred to by economist Horst Siebert as “the cobra effect”.
Using incentive controls can lead to unintended consequences unless the risks they bring are understood in advance. If you don’t do that, they can come back to bite you.
Data sources: The Whack Pack – Roger von Oech; United Nations University website; the10group.com; wikipedia