The Great Hanoi Rat Massacre of 1902

Cobra Effect

The Great Hanoi Rat Massacre of 1902 serves as a classic example of the cobra effect, where well-intentioned policies backfire due to perverse incentives. Gary Arndt explains how the French colonial government's bounty on rat tails led to people breeding rats to collect more bounties, worsening the infestation 1. This phenomenon is not unique to Hanoi; similar instances have occurred throughout history, such as the British cobra bounty in India, which resulted in an increased cobra population when breeders released the snakes after the program ended.

The great Hanoi rat massacre is a textbook example of what economists call the cobra effect, or perverse incentives.

--- Gary Arndt

These examples highlight the unintended consequences that can arise when incentives are misaligned with desired outcomes.

   

Economic Missteps

Economic missteps often stem from poorly designed incentive structures, as seen in various historical contexts. Gary Arndt discusses how the Canadian government's funding model for orphanages and psychiatric hospitals led to the misdiagnosis of children to increase funding 1. Similarly, the Union Pacific Railroad added unnecessary track curves to maximize profits, and the British military's poppy destruction payments in Afghanistan inadvertently encouraged more poppy planting.

There's actually a shocking number of cases of perverse incentives throughout history, some of which are still being done today.

--- Gary Arndt

These cases underscore the importance of carefully considering the broader impacts of economic policies to avoid counterproductive outcomes.