Modern Vices 2: The Cobra Effect

Years ago, under the occupation of the British Empire, India was abundant with cobras.

The venomous snakes often accompanied local charmers as an accessory for shows and entertainment. The freedom granted to such dangerous animals shocked the colonisers, whom decided to decrease its population. They did so by drafting a bounty such that any prospective person could hunt the cobras for a payment. For a while, this seemed to work, as locals began to scour the wild lands for the snakes. This solution, however, would not turn out to be easy and effective as expected.

The farmers, unwilling to risk their lives in the wild, decided to maximise their output by establishing full-scale snake farms. Here, they would collect generations of offspring to be grown and culled for massive rewards. Of course, there was no mention in the bounty of the snakes being domesticated or wild. This eventually caused the snake population to skyrocket.

The colonisers were so appalled and humiliated at the size of the population and the failure of their policy, that they ultimately agreed to scrap the bounty away. With the incentives of profits gone, the farmers could not bother to be burdened with maintenance and breeding, and so they released their cobras back to the wild.

While the legitimacy of this anecdote is unclear as there have been no concluding evidence on such a bounty or snake farm, the story did give rise to a new economic theory known as ‘The Cobra Effect’, usually concerning demerit and addictive goods such as liquor and tobacco. It occurs when the expectations of a certain policy is polar opposite to its results. It also occurs when a potential solution to a problem only abates it further.

Consider a period heavily documented and written upon: Prohibition in the early 20th century. With the prominent influence of the Temperance movement, the United States had drafted the 18th Amendment to ban the sale and consumption of liquor to the public. The only issue with demerit goods, as any economist will tell you, is that in any free market society it will always be overproduced. As the federal government cracked down on the public consumption of alcohol, demand for underground production had risen sharply. In fact, the ban had made prices more cheaper and readily accessible than before. This failure would once again compel Congress to ratify the 18th Amendment with the 21st, the only ratification to be made in US history.

Sometimes policies as grandeur as the 18th Amendment and plans as minuscule as choosing an elective don’t work to our favour and end up making us worse off. However, it is far more convenient to appreciate the theory of uninterested consequences in order to attempt for the better.