The Cobra Effect: A New Freakonomics Radio Podcast

Listen now:

(Photo: Russ Bowling)

Our latest  Freakonomics Radio podcast is called “The Cobra Effect.” (Download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) The gist: when you want to get rid of a nasty pest, one obvious solution comes to mind: just offer a cash reward. But be careful — because nothing backfires quite like a bounty.

This is a story-filled episode that looks at the unintended consequences of trying to control everything from traffic to rodent populations to dangerous gases. If you’ve been hanging around these parts for a while, you will have noticed a similar theme in our “Misadventures in Baby-Making” podcast or the section of the film Freakonomics wherein Steve Levitt tries to potty-train his daughter.

The episode begins with Vikas Mehrotra, a finance professor at the University of Alberta, who is visiting Bogota, Colombia, and notices a strange traffic pattern. (You may remember Mehrotra from our “Church of Scionology” episode.) If you want to do some further reading on the story Mehrotra tells, check out “Rationing Can Backfire: The ‘Day Without a Car’ in Mexico City” (abstract; PDF) and “The Effect of Driving Restrictions on Air Quality in Mexico City” (abstract; PDF). 

Mehrotra also introduces us to “the Cobra Effect,” a term popularized by the late German economist Horst Siebert:

MEHROTRA: So the “cobra effect” refers to a scheme in colonial India where the British governor, or whoever, the person in charge in Delhi, wanted to rid Delhi of cobras. Apparently in his opinion there were too many cobras in Delhi. So he had the bounty placed on cobras. And he expected this would solve the problem. But the population in Delhi, at least some of it, responded by farming cobras. And all of a sudden the administration was getting too many cobra skins. And they decided the scheme wasn’t as smart as initially it appeared and they rescinded the scheme. But by then the cobra farmers had this little population of cobras to deal with. And what do you do if there’s no market? You just release them. And so this significantly, by a few orders of magnitude, worsened the cobra menace in Delhi.

In a similar vein, you’ll hear the historian Michael Vann talk about his research, captured in “Of Rats, Rice, and Race: The Great Hanoi Rat Massacre, an Episode in French Colonial History” (abstract; PDF).

We also sent producer Katherine Wells on a hunting trip of sorts, down to Fort Benning in Georgia, where a surplus of feral pigs led to the introduction of, yes, a cash bounty. This captured the curiosity of Robert Holtfreter, who was then a Ph.D. candidate in wildlife sciences at Auburn. Here is Holtfreter’s PowerPoint assessment of the bounty program and here’s his pitch for “localized management,” a pig-removal technique that he prefers.

Later in the episode, we point out how a bounty designed to fight greenhouse gases backfired and how the Endangered Species Act sometimes ends up further endangering the species it was meant to protect (here‘s a paper on the topic, by John A. List, Michael Margolis, and Daniel E. Osgood).

And you’ll hear Steve Levitt taking the long view on the use of bounties or similar incentives: 

LEVITT: Well I think you start by admitting to yourself that no individual, no government, is ever going to be as smart as the people who are scheming against you. So when you introduce an incentive scheme, you have to just admit to yourself that no matter how clever you think you are, there’s a pretty good chance that someone far more clever than yourself will figure out a way to beat the incentive scheme. 

 

Robert Holtfreter, an academic researcher trying to figure out the pig glut. (Photo: Brian Williams)

A pig tail, proof of a kill, worth $40 in the Fort Benning pig-bounty program. (Photo: Katherine Wells)


Shane L

"...nothing backfires quite like a bounty."

Terry Pratchett's brilliant Discworld series illustrated that beautifully in its story about the rise to power of the Patrician, Havelock Vetinari. The city had been suffering from rats and the government announced a bounty for rat tails, causing a great wave of rat tails to arrive, the city's coffers to be depleted, yet the rats to continue multiplying.

Vetinari's solution: "Tax the rat farms."

I hope Freakonomics readers are Pratchett readers too! A surprising amount of overlap between the two, really!

John C

My first thought while listening to the podcast also went to Pratchett and the Patrician. You have to hand it to the man. If you don't he will send men to come and take it. LOL

Mike B

Human civilization has an amazing ability to get species to go extinct, usually due to various market mechanisms. It is baffling that the same mechanisms so often fail when we actually desire a species to be eliminated from a certain area.

Anyway the problem with bounty programmes is often poor implementation with "scams" that even a 5 year old could figure out. The most effective way to drive a wild animal to extinction is to provide a market for that animal where there is profit in hunting said animal, but not in raising said animal (alternatively is raising said animal is subject to easy detection, simply prohibiting the act by law).

In addition to providing incentives to hunting a specific species government can help by reducing costs such as eliminating license requirements and other hunting restrictions like a defined "season" or not being able to hunt from your car.

Instead of a straight bounty the better solution would be to work with a wild pig meat processor to offer a price above market rate for freshly killed wild pigs. The requirement for freshness will limit import beyond a desired radius. Because the whole pigs are delivered there is no ability to scam the system through wild pig parts. The duration of the bounty programme can be tweaked to discourage people actually raising wild pigs.

Read more...

James

Or perhaps just popularize a market for organic, free-range pork?

funkyj

I liked the podcast on this topic. In all of the cases of the incentives backfiring, they backfire because an easier to measure proxy for the desired effect is rewarded.

In the case of the cobras, rats and pigs, what is really desired is a lower population density of the pest over time. Of course it is far easier put a bounty on tails or skins than to come up with a reward that pays for the improvement you actually want.

I think google's bounty for exploits of their chrome browser

http://www.zdnet.com/google-patches-60k-chrome-hole-in-10-hours-7000005614/?s_cid=e539

is an excellent example of a bounty that works because they are paying for the thing they actually want rather than a distant proxy.

TANGENT: on this TAL show

http://www.thisamericanlife.org/radio-archives/episode/474/back-to-school

one of the experts talks about the shift US public education made to focusing on easy to measure cognitive skills despite the fact that (as we now know) non-cogs have a higher correlation with success in later life.

I.e. the joke about the guy who is looking for his keys under the streetlamp rather than where he knows he dropped them because the light is better by the lamp. People often focus on non-optimal things because "the light is better".

Read more...

JAM

Kinda makes you feel bad for all the central planners out there.

Joe Dokesq

I think what this article really demonstrates is the difficulty in finding the right incentives.

For example, I teach and we were told we needed to reduce the number of D's and F's students receive by 10%. We were then told to offer suggestions on how this could be obtained. I raised my hand and said, "Simple, we lower our standards."

Needless to say I was not popular with the principal that day. But my example, and the examples above clearly show that although "the market" can, in principle, provide many solutions through appropriate incentives. Frequently, the reality is that a failure to create good incentives can and does lead to the exact opposite of what is trying to be accomplished.

Regards,

Joe Dokes

Miguel Valdespino

This is similar to the "security mindset". If you think about your incentives like an honest person, you won't see the flaws. You need to actively think about ways to break the system to find the flaws. You may never catch them all. But you can often eliminate some of the easiest ways to game the system and some of the ones that produce the worst results.

George Donnelly

Just stop trying to control other people! Problem solved.

Daniel Ayala

A Freak history for Freakonomics
Changing behaviour requires new and more creative tools as people use to internalize the old tricks to their strategies.
I've experienced a lot of this as a college teacher but I was specially touched by the history of Bogota for I suffered a lot of the traffic situation. But I have the authority to tell you: It used to be worse during the 90's but the solution they applied then was odd but very effective: They used MIMES and other SOCIAL EXPERIMENTS to solve traffic, murdering and the typical problems of a third world metropolis.

Traffic accidents decreased, murder rate astonishingly decreased and the city changed completely... all this form a Mayor who used to dress like a super hero and boosted his political career by showing his ass to a group of aggressive students.

I think the history of Bogota during the 90's is freak enough for freakonomics. Here's a european documentari about it:

http://vimeo.com/25521307
or
http://www.youtube.com/watch?v=5OdhD5D5its&feature=plcp

Now that I recently finished my master's degree, I'm now a follower of this kind of new and more creative tools to change behaviour in many ways and I'm doing some research to apply this principles to drug production and conflict in Colombia.

Read more...

Matt

Developers might build quickly in the face of the Endangered Species Act, but w/o it, they would still build. It is, again, disingenuous of you to act like the ESA has only negative consequences. But don't let the truth get in the way of your story!

Kurt Schwind

You can see this outside of the animal kingdom/environment. In software development, various companies have tried cash incentives for fixing software bugs. Every instance of this that I'm aware of has backfired. Developers produce 'more' bugs in order to fix them for the cash.

Tom

What incentive is there for Drug Companies or Anti-Virus companies to rid the world of disease and malware?

Philo Pharynx

For drug companies, the incentives aren't to cure the disease. It's to manage the symptoms. A cure end their profits, but managing the symptoms means you become a regular customer. In the cobra example, they wouldn't get rid of the cobras, they'd have you pay to move the cobras away.

For the anti-virus companies, they do have an incentive to keep your computer free of malware. If you get malware and your current provider doesn't catch it, you often go looking for a new anti-virus program. The big difference is that anti-virus companies are not going after the virus writers directly. To apply it to the cobra bounty concept. - virus writers aren't hunting cobras, they are selling tougher and higher boots!

john ledbury

There was a story when the European Union wanted to decrease Europe's milk production it required farmers to slaughter their herds. Farmers presented an ear from the carcass and received compensation. Which is what the English farmers did. The canny Italian and Spanish farmers chopped both ears off their cows, claimed two lots of compensation and carried on milking. I don't know how true it is, but it sounds like the European Union.

Gkm

I have to say the premise of this story was based on a lie in my opinion. A car that loses battery power sufficient to delete stored codes cannot be started with the remaining juice. Either the person disconnected the battery on purpose and fibbed about the circumstance in their version to you, or they failed to mention their battery was dead when they went to start it. In the latter case, they would have put two and two together when talking with the mechanic and for having not relayed to you makes it less likely. All IMHO.

Gkm

Levitt, if your neighbor was smart enough to figure out the scheme why do you think she would be dumb enough to sell you rats cheap? She would sell them to you at a rate equivalent to the discounted cash flow to be accrued. You'd be better off to look for a reward to reveal the scheme to the authorities and move on.

Curtis Sumpter

Hey Freakonomics,

Can you post the list of songs on this podcast? I love this music.

-- Curtis Sumpter

Bill F

A dark-humor look at another example of the Cobra Effect in action, this time with the Federal Funds Rate, the actual interest rates issued on mortgages, and the profit incentive of financial institutions. Happy reading!

"In a move that your Wonkette finds SHOCKING, just SHOCKING, major banks have decided not to lower home loan interest rates for customers, even though the federal funds rate is hovering at around zero and banks are making a killing on mortgages

[...]

Timothy Sloan, chief financial officer at Wells Fargo, said on a conference call with analysts Friday that lowering prices would not be 'a good decision from a profit standpoint…We don’t run the business based upon [market] share; we run the business based on profitability.'….One official added that he even expects mortgage rates to rise next year."

http://wonkette.com/486703/in-shocking-move-banks-pocket-cash-meant-for-homeowners

Read more...

Margaret Thompson

The "cobra effect" works on non-humans too. I heard about a study of predation by domestic cats on songbird populations. A group of owners trained their cats to bring home any wild animals they killed. The researchers counted up the carcasses and variety of birds, small mammals, and reptiles brought home and then extrapolated to the number of house cats in the area. Their numbers indicated that the songbird population was being decimated, which it wasn't. Especially since the cats weren't expected to eat their kills, nothing limited the number of "bounties" the cats could collect.