Monday 11 June 2012

Perverse Incentives

Haha - these are great:

1. In Hanoi, under French colonial rule, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats.

2. 19th century palaeontologists traveling to China used to pay peasants for each fragment of dinosaur bone (dinosaur fossils) that they produced. They later discovered that the peasants dug up the bones and then smashed them into many pieces, greatly reducing their scientific value, to maximize their payments.

3. Opponents of the Endangered Species Act in the US argue that it may encourage preemptive habitat destruction by landowners who fear losing the use of their land because of the presence of an endangered species, known as "shoot, shovel, and shut up."

4. In the former Soviet Union, managers and employees of glass plants were at one time rewarded according to the tons of sheet glass produced. Not surprisingly, most plants produced sheet glass so thick that one could hardly see through it. The rules were changed so that the managers were rewarded according to the square meters of glass produced. The results were predictable. Under the new rules, Soviet firms produced glass so thin that it was easily broken. 

And here's another:

5. Private companies were paid to transport convicts/prisoners from the U.K. to Australia during the late 1700s and the early 1800s.  The first payment schedule was based on the number of prisoners who boarded ships in the U.K.  As you might imagine, there was no incentive to deliver living prisoners to Australia, and many of them died during the trip, due to overcrowding, lack of food and water, unsanitary and unsafe conditions, untreated diseases, etc.  The payment schedule later changed, and was subsequently based on the number of living prisoners delivered to Australia. Result?  Fewer prisoners died during transport.

I'll add one of my own. In About Face, Hackworth described the body count system in Vietnam, and how the pressures to achieve body counts led to all sorts of distortions of the facts. The had a "dich board" at their base, that counted their kills for the month. He climbed an observation tower and was talk to the sniper there about the uselessness of their Vietnamese allies at the checkpoint down the road. The sniper suggested that he shoot a few South Vietnamese soldiers manning the checkpoint, and that they add them to their dich board. He was quite serious about it.

On another occasion, they were digging in for the night and one of the troopers dug up the rotting body of a VC (complete with AK47). He's presumably been buried by his comrades. They duly reported the find as a kill - anything would do to make the numbers for the month.

The whole solar and wind industry is similar to the first case - the rat farms. Wind and solar farms have been built by private industry simply to harvest subsidies.

The term 'Cobra effect' stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes. The Government therefore offered a reward for every dead snake. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually however the Indians began to breed cobras for the income.

When this was realized the reward was canceled, but the cobra breeders set the snakes free and the wild cobras consequently multiplied. The apparent solution for the problem made the situation even worse.


Anonymous said...

I saw a documentary on the Soviet system, detailing why it collapsed. One example given was a furniture factory, meant to produce consumer goods, which under a bizarre system of government incentives, only produced massive 12 foot long longes that were too heavy to be moved, too large to actually fit in a house and were only ever bought by the Kremlin in an effort to prop up the factory.

Any time any government anywhere tries to provide any incentive to encourage or discourage some activity you can usually rely on it not only not working but being counter-productive.

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