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Vikas MEHROTRA: So I’m Vikas Mehrotra. I teach finance at the University of Alberta in Canada.

Stephen J. DUBNER: So where are you? Where am I speaking to you?

MEHROTRA: I’m in Bogotá, Colombia.

DUBNER: You’re in Bogotá, what are you doing there?

MEHROTRA: I was here for CFO summit. I was doing some talks on corporate governance.

DUBNER: How’s the traffic there I’m wondering?

MEHROTRA: Right now from the window of my room it looks beautiful, it’s flowing, but then I’m in a residential area. When you get to the city’s main arteries, it moves with all the elegance of snails.

DUBNER: Fast snails or slow snails?

MEHROTRA: Slow snails.     

When I talked to Mehrotra, he was staying at a hotel in Bogotá a few miles away from the university campus where he was giving his talks. And every day, he’d get a ride to the campus from friends of his, a couple of professors who teach at the university. One thing struck Mehrotra as very strange. His friends never picked him up in the same car two days in a row.

MEHROTRA: So we’re at the Bogotá Sheraton parking lot.

We sent reporter John Otis out one morning to take a ride with Mehrotra and his friends:

John OTIS: So what kind of car is this?

MEHROTRA: Chevy Optra, I can read it here. The license plate is RMM 660. And it’s the last digit — the zero — that’s important.    

Now, Bogotá has legendarily bad traffic and the pollution that goes along with it. City officials have tried all kinds of solutions including license-plate rationing.

Alexander GUZMAN: Welcome onboard.

That’s Alexander Guzman, one of Mehrotra’s friends and chauffeurs. Guzman pulls out a newspaper and reads the prevailing driving rules.

GUZMAN: You’re not allowed to drive a car if your license plate ends in 1, 2, 3, 4 on Friday. On Monday, if your license plate ends in 5, 6, 7, 8, it’s the same. You’re not allowed to go out.

Bogotá was not alone in trying this, trying to cut down on traffic by allowing certain cars on the road on certain days. Mexico City has done it, Athens, Beijing when it hosted the 2008 Olympics. But what do you do if you need to drive every day – or at least want to drive every day? Guzman came up with a workaround:

GUZMAN: We decided to buy two cars.

OTIS: Do lots of people that you know buy two cars because of this license plate system?

GUZMAN: Yes, yes. For example, our dean was telling us that they have four cars in their home. Because his wife works in another company, and they live outside the city, so they need four cars.  

OTIS: That sounds crazy.

GUZMAN: Yes, but it’s the solution that everyone is implementing to avoid the restriction.

You might think, as I first thought, that it’d be easier to just make or buy fake license plates — and indeed, we’re told that such a black market has existed in Bogotá. But that’s illegal, and the penalties are apparently stiff enough to discourage fake plates. So what do you do? You do the perfectly legal thing and buy a second car. Now, that’s not what Bogotá had in mind when it introduced the license plate scheme. And we don’t have enough data to know what effect it’s had. But there is good data from the license plate rationing plan in Mexico City. Turns out that a lot of people there also bought a second car to beat the system. And a lot of those cars were older models, less energy-efficient. So, the net result? After the license-plate regulation went into effect in Mexico City — the regulation that was designed to cut congestion? Total driving went … up.

*      *      *

Do you believe in economics? If you do, even a little bit, then you also believe in incentives — that people respond to incentives, whether they’re financial incentives or something else. And that’s why all of us — individuals, families, firms, governments — when we have a problem we want to solve, we come up with some kind of incentive scheme. But: do you also believe in poetry? It was the Scottish poet Robert Burns who wrote about “the best-laid plans of mice and men,” and how they often go awry. How awry do they go? Not just a little bit awry. The best-laid incentive plans sometimes not only don’t work — but they backfire completely. Here again is Vikas Mehrotra.

MEHROTRA: This is what in economics we call the “cobra effect” where you have a well-intended scheme, but instead of solving the problem it makes the problem actually worse.

This term — “the cobra effect” — it goes back a while.

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.

Michael VANN: I’m pushing for the rat effect, in lieu of the cobra effect.

That’s Michael Vann. He is a history professor at Sacramento State University. And this is Katherine Wells.

DUBNER: Say hi, Katherine.

Katherine WELLS: Hi.

DUBNER: She’s a producer on our show. And we sent you out to look for other instances of the cobra effect, did we not?

WELLS: Yes, and this led me to Michael Vann. So, Vann did his graduate research on colonial Vietnam. And that meant he spent a lot of time in the French national archives, looking at old urban planning documents for Hanoi. Boring stuff. But one day he got to this file on sewers.

DUBNER: Not boring.

WELLS: No, not boring. And he came across this…

VANN: There was a list of rats killed in a day. And it was the most interesting thing I’d seen in a couple months.

WELLS: But let me back up a little bit, to a time before that list. Around the turn of the century, the French were rebuilding Hanoi. And you know, the French are French, so they didn’t want it to be just any city. It was going to be a model city. We’re talking evidence of French civilization, the most beautiful city in Asia.

VANN: And one of the key elements of French urbanism, in addition to the beautiful buildings and the wide streets, were sewers. Unfortunately there was one unintended consequence, and that’s that the sewers provided a wonderful home for rats.

So. after the sewer system was laid there started to be reports of rats coming up through the flush toilets into the stately villas of the French neighborhood thus undermining the French sense of superiority and the prestige they enjoyed living in the nicest, most advanced part of the city.

WELLS: It was the rat highway.

VANN: It’s the rat super highway, yeah. And the situation became all the more serious during moments of bubonic plague outbreak. And here you have the bubonic plague, which the French viewed as a Vietnamese problem, making its way into the French neighborhoods because the rats are overpopulating the sewers in the French neighborhood, coming into the homes of the French families, and you start to have European cases of bubonic plague in some of the outbreaks in the early twentieth century after the opening of the sewers.

WELLS: So the French get very freaked out by this, and they decide they need to act fast. They hire a bunch of Vietnamese exterminators, to go down into the sewers and kill the rats. Which is where we come back to that list that Vann found in the archives.

VANN: So this is compiled in the spring and summer of 1902, and it’s a list of the total rat kills. In the first week, they’re pulling up hundred of rats. A month into the project, they’re pulling up in one day, on May 19th, seven thousand four hundred forty-two. The high point, I believe, according to these records was in June, June 12th, 1902, they killed twenty thousand one hundred and fourteen rats.

WELLS: Twenty thousand rats killed in a day?

VANN: In a day. And this is, you know, I’m looking at this spreadsheet here, and I’m looking at numbers, seven thousand, six thousand, eight thousand, seven thousand, ten thousand, eleven thousand, fifteen thousand, nine thousand, so there seems to be an endless supply of rats. They’re not making a dent on it.

WELLS: Clearly the French are going to need more than a few exterminators to solve the problem. And someone has an idea:

VANN: They decided that they’re going to turn to the civic responsibility of the Vietnamese residents of Hanoi, so they set out a bounty.

WELLS: To collect the cash bounty, people had to bring in the rats’ tails as proof of their kills.

VANN: Thousands of rat tails are being delivered to the city hall. The French think they’re really making a dent into the rat population. Then, a few months later, one of the health officials is out in the suburbs of Hanoi just outside the city limits, and it’s just outside the city limits where a lot of shady business would go on. You’d have smugglers out there, you’d have houses of ill repute and so forth. And he was checking out one of these villages on the edge of Hanoi and discovered a rat farm. And the Vietnamese were growing rats, cutting off their tails and bringing them into the city, to the city hall, to collect the bounty. You know, this is absolutely a disaster in terms of trying to remove rats. But it does show that the Vietnamese are really catching on with the entrepreneurial spirit that the French wanted to instill in them.

As we’ve said before on this program, and will surely say again: one of the most powerful laws of nature is the law of unintended consequences.

Coming up on Freakonomics Radio: do you have what it takes to be a rat farmer?

Steve LEVITT: I don’t think I would have been smart enough to actually get the idea to start breeding rats and cobras, but I sure hope I would have been smart enough that when I saw my neighbor doing it, I would have been a quick follower and I would have been buying a few rats off him cheap.

*      *      *

Today we’re talking about the “cobra effect,” which is what happened in the old days when, a government wanted to, say, get rid of some pests – snakes or rats – and they’d set up a bounty to get its citizenry to pitch in. But sometimes the bounty would backfire. Now, surely that kind of thing doesn’t happen anymore, does it?

WELLS: OK, it is Monday morning, I’m sitting in the car. I am about to drive out to Fort Benning.

That’s producer Katherine Wells again. This time, she’s in Fort Benning, Georgia.

WELLS: Fort Benning is an army base, which is technically called a military post, in southwestern Georgia. And once you’re inside, past the checkpoint, Fort Benning looks like any other town. There are residential neighborhoods, schools, restaurants, gas stations. It’s huge — it’s over twice the land area of Atlanta with about 120,000 residents. There are lush green woods, ponds and creeks cutting through bright red soil. It’s really beautiful. So beautiful in fact that you might forget you were on a military installation…

Bill BRICKNER: Whoa.

WELLS: If not for the occasional sound of artillery fire in the distance.

BRICKNER: They’re over there training.

WELLS: That’s Bill Brickner. He’s a retired master sergeant and a Vietnam vet who knows the post inside and out. He’s legendary around here. In fact, his business card says so.

BRICKNER: Bill “Hog Daddy” Brickner. Local hunting legend. That’s a big title, isn’t it? That don’t even sound like me, girl. But most people, they say, when you want to know something about Fort Benning, you’ve got to ask Bill Brickner.

WELLS: I did want to know something about Fort Benning — something that Brickner has a little expertise in. I wanted to know about the pigs. If you live anywhere in the southeastern U.S., you probably already know about the pigs. There are millions of wild pigs living in forests and mountains and marshes all over the country. They’ve been in the U.S. for centuries, ever since they were brought over by Spanish explorers, but their numbers have exploded in the last few decades. And like most invasive species, they cause some problems.

BRICKNER: They’re a nuisance and they need to be controlled. It’s amazing what a pig will eat.

WELLS: Pigs dig up the land looking for food, and even just a handful of pigs can do a massive amount of damage. And on Fort Benning, there aren’t just lawns and native plants to tear up but expensive military training equipment, too. So when he can, Bill Brickner loads his gun into the back of his truck and he goes out for a little recreational pest control.

BRICKNER: We joke about it, we say, “When you’re not shooting a pig, those pigs are out there makin’ bacon.”

WELLS: Recreational hunting by retirees like Brickner isn’t enough to control the population; there are still thousands of pigs on the post, causing problems. And back in the summer of 2007, this situation was getting out of control.

BRICKNER: They had to do something. Pigs were getting into everything. And they used to say, “Man, what are we going to do about the pig situation?”

WELLS: It was time for a bounty. The bounty had a name: they called it the Pig Eradication Program. Fort Benning loosened up a few restrictions about where and when you could hunt and they essentially said: have at ‘em. You could even leave the pig right where it was killed. As for proof of the kill? All you had to do was bring in… the tail.

BRICKNER: They would give $40 a tail. You know, it paid for your gas, paid for your ammunition. It gave you an incentive to go out and stay out all day long.

WELLS: Now, at the time, Fort Benning was also confronting the pig problem in a different way: they had hired some researchers from nearby Auburn University to do a study and to figure out if there were any new, better ways to remove pigs from the post.

Robert HOLTFRETER: I have a fondness for pigs. Which is kind of odd considering how many pigs I’ve had to kill.

WELLS: This is Rob Holtfreter. He was working on his PhD in wildlife sciences at Auburn, and he headed up the pig research. He would track pigs on the post with GPS, trap them, kill them, and then he’d bring them back to the university for dissection. When the bounty went in place in 2007, Fort Benning asked Holtfreter to monitor its effect — to figure out if it was working. And when it began, he estimated that there were maybe around 1,000 pigs on the post. A year and a half into the program, hunters had already killed over a thousand pigs. Which you’d think would mean the pig population was pretty much under control. But when Holtfreter sat down his tracking and trapping data, that’s not what he found. What he found was this:

HOLTFRETER: The population was growing. It’s like, holy cow, we just saw that population double, like that. And then we’re kind of, we’re kind of out there trying to explain to these people how they supposedly killed the number of pigs that they did but the density is increasing. It’s like, “We killed 1500 pigs, but you’re saying the density went up, how’s that possible?” And we’re like, “Good question! How is that possible?”

WELLS: Now along with each tail, hunters were supposed to turn in an information sheet with details about how, when, and most importantly, where they killed each pig. Rob Holtfreter started looking at the data from the sheets.

HOLTFRETER: Everything I know about pigs tells me you couldn’t have killed that many pigs in that small of an area in that amount of time. And there were some of those locations where you’re like, that’s the top of John Wayne Hill, it’s sand, they run tanks through there. Nobody killed 30 pigs in that spot. So yeah, there was a lot of that, like we have specific knowledge of this location. Not only that, but I mean, we have specific knowledge of the pigs in that location. And this just doesn’t sync up that so and so says in the last 2 weeks they’ve killed 30 pigs there. And not only that but, I don’t think anybody could be that successful.

WELLS: But if the tails weren’t coming from Fort Benning, where were they coming from?

Jason DAFFIN: That’s our guard dog, our ferocious guard dog.

WELLS: Oh yeah, I’m scared.

WELLS: Brothers Johnny and Jason Daffin run a family business called Daffin’s Meat Processing not too far from Fort Benning.

DAFFIN: We do custom slaughter. So we do cows and hogs, sheep, goats, anybody you don’t like. Get a little more for that though.

WELLS: Jason Daffin was in the middle of skinning a wild sow when I stopped by.

DAFFIN: A little wild, probably about an 80 pound little female pig. Just the right eating size.

WELLS: So where’d this one come from?

DAFFIN: Fort Benning. They get a lot of them at Fort Benning. They’re kind of a nuisance. They’re like an armadillo on steroids, they can really tear up the land quick.

WELLS: So, one thing I wanted to ask you is, I’ve been talking to people about the bounty, and you turned in the tail and everything. And I was wondering, did anybody ever just call you and want to get your tails?

DAFFIN: Yeah, but that’s not, you know, right’s right and wrong’s wrong. And that’s just not the way we operate. But there wasn’t many people like that at all. It was a good program. And there was just one and every now and again would call up and say, “Hey, they didn’t want their tail? Save me a tail!” Or people wanting to go and get them off of domestic hogs and all that. Even some people would kill a pregnant sow and want to get the tails off the little babies, that weren’t even born yet, so you have all kind of people out there, you know, trying to take advantage of the system.

WELLS: Do you have a tail? Can I see one? Do you have any lying around?

DAFFIN: Um, let’s see… kind of an unusual request.

WELLS: Daffin opened a big bucket. There were a bunch of pig parts inside.

DAFFIN: Look at that.

WELLS: There it is!

DAFFIN: There’s your old hog tail, in all its glory. It’s not exactly curly-cue like what you see in the cartoon, just kind of straight, hairy pigtail.

WELLS: I wanted to know if other people had gotten the same kinds of calls. So I stopped by another business that does meat processing. It’s called Buckhead Taxidermy. The owner is James Cureton.

CURETON: Oh, I’m sure everybody did. Whether they’d tell if they did or not, I don’t know, but I’m sure they did.

WELLS: I mean, I wouldn’t be surprised with all the tail fever if you could start a tail business.

CURETON: Well, a friend of mine had a pig farm and he said they was wanting to buy the tails off his pigs. You know, he can sell these little pigs cheap, and they’ll buy these pigs just to get the tails off of them.

WELLS: Really!

CURETON: Yeah, you can buy a little baby pig for 5 or 10 dollars and you know, if they’re giving 45 dollars for a pigtail, gosh, look at the money that would be.

WELLS: So to collect the cash, hunters needed to bring their tails to the Fort Benning Conservation office, which deals with all sorts of wildlife issues. Biologist Mark Thornton and technician Gregory Brooks work on staff in the office. They spend a lot of time trapping and removing pigs from the base, so they’re the local experts on the pigs. Now, they weren’t so crazy about the idea of a bounty to begin with. They really didn’t think it would work. So I figured if suspicious tails had come in, they might have known about it.

WELLS: So here’s what I want to ask about. If you get $40 per pigtail, it makes total sense that people might start trying to get pigtails somewhere else. Did that happen? Can you tell me that or no?

Gregory BROOKS: I don’t want to tell you that.

WELLS: You can say no comment.

BROOKS: No comment.

WELLS: No comment from you, Mark?

Mark THORNTON: I don’t have any record of it happening. Now whether it happened or not, we don’t know.

WELLS: Were you worried about it? Was it kind of like…

THORNTON: Obviously everybody thinks about that. ‘Cause you came in here with 10 tails, that’s $400. That’s enough incentive to make some people start thinking about it.

BROOKS: There’s definitely the possibility that at some point somebody broke the rules. And that’s expected when you’re talking about bounty programs.

WELLS: So pretty much every time there’s a bounty, there’s some of that involved.

BROOKS: I’m quite sure of it. Sometimes you get the reverse effect of what you’re trying to do. Overall it upside-downs the whole idea you’re trying to accomplish.

WELLS: Almost everyone I talked to at Fort Benning had heard these rumors about people buying tails from domestic pig farms. But no one really thought the cheating was that widespread, either. And even if lots of the tails had been coming from somewhere else, there was still that nagging question: why was the population going up? One factor was that southwestern Georgia was just beginning to recover from a drought. So there was a lot more food for pigs out in the woods. But the bounty was making things worse. Because in order to help the hunters draw the pigs out of the woods, Fort Benning started giving out free bait. Here’s Rob Holtfreter again from Auburn University.

HOLTFRETER: They could back up to any cafeteria and fill up like a 40 gallon bucket full of waste leftover from the meals. You’d see like butter packets and steaks and dinner rolls, just high calorie stuff that you shouldn’t feed an invasive species. And then they’d go out and dump it in these long lines, you know. And we’d see them. And you know, you might have 15 or 20 pigs in an area. You might pull up and kill 3 or 4 from the road. And meanwhile the other 15 are fat and happy. And they’re also figuring out what the crunch of a tire on gravel sounds like. They’re figuring out what’s going on. It’s like, well, we’ve got a free meal, but we’ve got to you know watch out for these warning signs. They educated pigs. And they fed them, they fed them really well.

WELLS: And what happens when you feed pigs really well?

HOLTFRETER: They make more pigs.

WELLS: I wanted to see these pigs in the flesh. So I asked Bill Brickner, the local hunting legend, to take me on a drive around the post.

BRICKNER: Right here we’re pulling into this cornfield. Pigs have just annihilated this cornfield.

WELLS: Brickner showed me how and where to look for them: he showed me what their tracks look like, how they rub red clay against the trees to scratch themselves. He showed me indentations in the mud where they’ve laid down to wallow. But we drove around for 3 hours and we didn’t see a single pig. And I started to think, hey, maybe they finally have this thing under control. But at dusk, as soon as it started to cool off…

WELLS: Whoa! How many are there, Bill?

BRICKNER: There’s 3, 4, 5, 6, 7, 8…

WELLS: Look, there are more! Oh my gosh.

BRICKNER: OK, so there’s 11, 12, 13, 14, 15…

WELLS: After 3 years and about $125,000 in payments, the bounty ended. Thousands of pigs had been reported killed. Now there’s no way to know exactly how many of the tails weren’t from Fort Benning, but what’s clear is that the end of the drought plus the tons and tons of extra bait helped the pig population to grow. All the hunters had really been doing was playing a giant, unwinnable game of whack-a-mole.

WELLS: That’s amazing, there are just tons of them.

BRICKNER: There’s 6-800 pounds right there of meat.

WELLS: So Bill, if you had been hunting, how would that have been different, what we just did?

BRICKNER: Oh, right there? I would have shot that pig right in the head.

That was Katherine Wells reporting from Fort Benning, Georgia. So, while the evidence from the Georgia pig bounty is a bit murky, the pattern here is pretty clear. An incentive like a bounty doesn’t always have the intended effect. Now, I realize that most of the stories we’ve told you today have concerned animals — feral pigs and sewer rats, overbred cobras — but I can assure you that the backfiring-bounty problem is not confined to icky animals. Consider an incentive scheme that the United Nations came up with a few years ago to cut down on greenhouse gases. It rewarded companies with carbon credits for disposing of polluting gases, and those credits could be converted into cold, hard cash. Now, the prices were set according to how bad these things were for the environment. And one of the highest prices — one of the highest bounties, really — was for destroying a nasty gas called HFC-23, which is a byproduct of a common coolant. So what happened? Yep — companies began to produce more and more of this coolant in order of destroy more and more of the byproduct waste gas, and collect millions of dollars in the process. The other problem was that the coolant itself was also really bad for the environment.

LEVITT: Some of the best-intentioned government policies have backfired through incentives.

That’s Steve Levitt, my Freakonomics friend and co-author. He’s an economist at the University of Chicago.

LEVITT: One example would be the Endangered Species Act. Which of course, by its very name is designed to save endangered species. But the way it was written into law, there’s a review period. So before any particular species can be named as endangered, there first is maybe, I forget the exact amount of time, a year or two years in which people are able to argue back and forth about whether it should be the case.

So while these human beings are arguing back and forth about whether a particular habitat should be protected, in order to save a particular species, some other human beings are quickly firing up their chainsaws.

LEVITT: What do you if you’re a developer in the meantime? Well, you build the buildings as fast as possible. If you think that there’s a chance that the red-bellied woodpecker is going to be protected by the Endangered Species Act, you have every incentive in the world to get the hotel up before anyone decides that that species is really endangered. Actually, there’s empirical work by my friend John List who has shown that, indeed, the Endangered Species Act often has the effect of endangering the very species it’s supposed to protect.

DUBNER: So as an economist, you preach that people respond to incentives?

LEVITT: I do believe heartily in incentives. And I think any problem you’re faced with, the typical economist, including myself, starts by asking: what are the incentives of the people involved and how can we get them to respond?

DUBNER: But when we hear these stories of incentives that are created, and these were incentive programs that don’t work out, what’s a well-intentioned public servant or even private citizen to do? You think you’re doing the right thing, you think you’re coming up with the right idea, you’re well-intentioned, and you offer your incentive scheme, and then the public, you know, the world, responds to it maybe in a way that you had never anticipated. So, how are you supposed to unleash these things in the world?

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. So, one response is to say, well, before I put it in place, let me at least try to think through all the crazy different approaches that might be taken that could trick my incentive scheme. But even on top of that, I think you want to design incentive schemes that are relatively simple. The more complicated you make something, the more opportunities there are for people to game it. If it’s simple, you usually think if you’re reasonably intelligent, you can think about a lot of the ways that people might respond to it, and prevent these sort of unexpected, backfiring, overly zealous responses to what you’re doing.

DUBNER: Alright. Imagine yourself 100 years ago, let’s say, living in Hanoi or India, and the government offers an incentive, a bounty for a pest, a rodent, a rat, maybe, a cobra. Let’s say you’re a person of humble means — you, Steve Levitt, living back then. Would you have been the kind of guy who would have figured out a way to take advantage of that bounty and raise and slaughter hundreds, thousands of rats, cobras, et cetera, or are you not that kind of guy?

LEVITT: So I don’t think I would have been smart enough to actually get the idea to start breeding rats and cobras, but I sure hope I would have been smart enough that when I saw my neighbor doing it, I would have been a quick follower and I would have been buying a few rats off him cheap — you know, one male and four or five females — and then making the most of it. So, I would hope I would be that kind of person.

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