Perverse incentive - AbsoluteAstronomy.com

A perverse incentive is an incentive

Incentive

In economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...

that has an unintended and undesirable result which is contrary to the interests of the incentive makers. Perverse incentives are a type of unintended consequences

Unintended Consequences

Unintended Consequences is a novel by John Ross, first published in 1996 by Accurate Press. The story chronicles the history of the gun culture, gun rights and gun control in the United States from the early 1900s through the late 1990s...

Examples

In Hanoi
Hanoi
Hanoi , is the capital of Vietnam and the country's second largest city. Its population in 2009 was estimated at 2.6 million for urban districts, 6.5 million for the metropolitan jurisdiction. From 1010 until 1802, it was the most important political centre of Vietnam...

, under French colonial rule, a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats.
Funding fire department
Fire department
A fire department or fire brigade is a public or private organization that provides fire protection for a certain jurisdiction, which typically is a municipality, county, or fire protection district...

s by the number of fire calls made is intended to reward the fire departments that do the most work. However, it may discourage them from fire-prevention activities, which reduce the number of fires.
19th century palaeontologists traveling to China used to pay peasants for each fragment of dinosaur
Dinosaur
Dinosaurs are a diverse group of animals of the clade and superorder Dinosauria. They were the dominant terrestrial vertebrates for over 160 million years, from the late Triassic period until the end of the Cretaceous , when the Cretaceous–Paleogene extinction event led to the extinction of...

bone (dinosaur fossils) that they produced. They later discovered that the peasants dug up the bones and then smashed them into many pieces, greatly reducing their scientific value, to maximise their payments.
In 1696, the English Parliament adopted a tax
Window tax
The window tax was a significant social, cultural, and architectural force in England, France and Scotland during the 18th and 19th centuries. Some houses from the period can be seen to have bricked-up window-spaces , as a result of the tax.-Details:The tax was introduced in England and Wales under...

under which dwellings were to be assessed according their number of windows. Although the tax was intended to be progressive in that it exempted houses with fewer than ten windows from the bulk of the assessment, in operation it exacerbated the gap in living conditions between rich and poor as landlords were incentivized to brick up tenement windows to reduce their tax liability, leaving working-class tenants with insufficient light and ventilation.
Paying architects and engineers according to what is spent on a project leads to excessively costly projects (cost overrun
Cost overrun
A cost overrun, also known as a cost increase or budget overrun, is an unexpected cost incurred in excess of a budgeted amount due to an under-estimation of the actual cost during budgeting...

s).
Paying medical professionals and reimbursing insured patients for treatment, but not for prevention, encourages leaving medical conditions until they require treatment.
In 2007, the Bangkok
Bangkok
Bangkok is the capital and largest urban area city in Thailand. It is known in Thai as Krung Thep Maha Nakhon or simply Krung Thep , meaning "city of angels." The full name of Bangkok is Krung Thep Mahanakhon Amon Rattanakosin Mahintharayutthaya Mahadilok Phop Noppharat Ratchathani Burirom...

, Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...

police switched to punitive pink armbands adorned with the cute Hello Kitty
Hello Kitty
is a fictional character produced by the Japanese company Sanrio, first designed by Yuko Shimizu. She is portrayed as a female white Japanese bobtail cat with a red bow. The character's first appearance on an item, a vinyl coin purse, was introduced in Japan in 1974 and brought to the United States...

cartoon character when the tartan
Tartan
Tartan is a pattern consisting of criss-crossed horizontal and vertical bands in multiple colours. Tartans originated in woven wool, but now they are made in many other materials. Tartan is particularly associated with Scotland. Scottish kilts almost always have tartan patterns...

armbands that had been intended to be worn as a badge of shame for minor infractions were instead treated as collectibles by offending officers forced to wear them.
After No child left behind imposed pay cuts and layoffs for teachers whose students performed poorly on standardized tests, hundreds of teachers and principals in Atlanta and Washington, DC were found to have altered their students' responses on standardized tests. Teachers in 14 other U.S. cities were accused of similar behaviour.
Opponents of the Endangered Species Act
Endangered Species Act
The Endangered Species Act of 1973 is one of the dozens of United States environmental laws passed in the 1970s. Signed into law by President Richard Nixon on December 28, 1973, it was designed to protect critically imperiled species from extinction as a "consequence of economic growth and...

argue that it may encourage preemptive habitat destruction by landowners who fear losing the use of their land because of the presence of an endangered species; known colloquially as "Shoot, Shovel and Shut-Up".
Providing company executives with bonuses for reporting higher earnings encouraged executives at Fannie Mae and other large corporations to artificially inflate earnings statements and make decisions targeting short term gains at the expense of long term profitability.

Examples

See also