The phrase "perverse incentive" is often used in economics to describe an incentive structure with undesirable results, particularly when those effects are unexpected and contrary to the intentions of its designers. The results of a perverse incentive scheme are also sometimes called cobra effects. This name was coined by economist Horst Siebert based on an anecdote taken from the British Raj. The British government, concerned about the number of venomous cobras in Delhi, offered a bounty for every dead cobra. Initially, this was a successful strategy; large numbers of snakes were killed for the reward. Eventually, however, people began to breed cobras for the income. When the government became aware of this, the reward program was scrapped. The cobra breeders set their snakes free, leading to an overall increase in the wild cobra population.

Examples of perverse incentives

Pest control campaigns

Community safety and harm reduction

Environmental and wildlife protection

Historic preservation schemes

Healthcare cost control

Humanitarian and welfare policies

Promotional schemes and public relations

Returns for effort

In literature

In his autobiography, Mark Twain says that his wife, Olivia Langdon Clemens, had a similar experience: "Once in Hartford the flies were so numerous for a time, and so troublesome, that Mrs. Clemens conceived the idea of paying George a bounty on all the flies he might kill. The children saw an opportunity here for the acquisition of sudden wealth. ... Any Government could have told her that the best way to increase wolves in America, rabbits in Australia, and snakes in India, is to pay a bounty on their scalps. Then every patriot goes to raising them."