Perverse Incentives

Perverse incentives are those incentives within behaviour modification strategies that operate rationally and in so doing produce the opposite of the intended outcome.

A bounty for rats can lead to an increase in the rat population. (CC0)
A bounty for rats can lead to an increase in the rat population. (CC0)

The classic example given in economic literature is the Rat Bounty of 19th century Hanoi. This resulted in the creation of rat farms by peasants who bred rats in order to turn in rat bodies to collect the bounty designed to reduce the rat population. In other words, the rat bounty increased rather than decreased the rat problem.

An example in higher education is the creation of global research ranking audit schemes that concretely reduce the amount of time available to researchers to undertake actual research.

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A Freaknomics podcast covers the Hanoi Rat Bounty and examples of perverse incentives. (podcast)

The description of the Hanoi Rat Massacre comes from Of Rats, Rice, and Race. See Hanoi Rat Massacre

One type of perverse incentive is Penalty Compression.

Source: perverse incentives

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