Simply put, the Cobra Effect is when a decision (business or economic) taken to solve a particular problem produces unintended after-effects that worsens the problem. It is a situation where an attempted solution to a problem makes the problem worse.
In the year 1977, in a bid to de-congest the chaotic Lagos traffic (no thanks to the oil boom of the seventies), the state government introduced a policy whereby odd-numbered and even-numbered license plate cars were to ply the roads on different days of the week.
The policy required car owners whose plate numbers began with an odd numeric (1, 3, 5, 7, 9), and those whose plate numbers began with an even numeric (2, 4, 6, 8), to stay off the roads (leading to Lagos Island) on alternate days of the week, except Saturdays and Sundays.
By that policy, cars with plate numbers beginning with an even numeric stayed off the roads on Mondays, Wednesdays and Fridays; while cars with plate numbers beginning with an odd numeric stayed off the roads on Tuesdays and Thursdays.
Conversely, cars with plate numbers beginning with an odd numeric stayed on the roads on Tuesdays and Thursdays; while those with plate numbers beginning with an even numeric stayed on the roads on Mondays, Wednesdays and Fridays.
Initially the policy worked well and traffic congestion was greatly reduced. Then the cobra quietly slithered in. Trust Nigerians, they soon found ways to circumvent the policy. The well-to-do acquired second cars; and the not too well-to-do acquired second number plates for the same car! And guess what? The roads got even more congested than ever before! The policy was abandoned.
What has the cobra got to do with business decisions? The Cobra Effect is a term in economics that refers to a situation in which an attempted solution to a problem makes the problem worse. The term was coined by the German economist Horst Siebert, in an anecdote about an incident that happened in colonial India.
Long time ago in colonial India, people were dying due to frequent snake-bites. For some reason, there were too many poisonous cobra snakes in Delhi. People even became fearful of stepping out of their homes.
To curb the menace, the colonial masters offered a silver coin reward for every cobra killed. This incentive worked well for a while as many snakes were killed by those who wanted the reward.
However, after a short lived decline, the cobra population started to rise again. Why? Because some people started breeding cobras for income! When the colonial masters got wind of that, they quickly scrapped the policy. The cobra breeders had no option than to set the now worthless snakes free, thereby increasing the cobra population, and making the situation worse.
In a similar incident in Vietnam, the authorities became aware that there were too many rodents in the city of Hanoi; and this made the possibility of a plague outbreak very high. So they quickly evolved a reward program that paid a price for each rat killed. To get your reward all you need do was submit the severed tail of a rat.
After initial success however, the authorities started noticing many rats without tails. Reason? The rats were no longer actually being killed. The rat catchers simply caught the rats, severed and took away their tails (for profit), and release the rats back into the sewers to continue breeding more rats (for more profit).
In all the above snippets, a well intended incentive aimed at solving a problem, ended up encouraging and even rewarding people to make it worse. That is the Cobra Effect.
The Cobra Effect reminds us that:
♦ In business decisions, we must be aware that every human action has both intended and unintended consequences.
♦ There is higher likelihood of unintended negative consequences to arise when a reward or incentive system is offered to solve a problem.
♦ Some business decisions and solutions, if not well researched and thought-through, could result in unintended consequences.
♦ We should always take a little time to review, think-through and comprehend the full implications and possible outcomes of our business decisions, no matter how well intentioned.
That way, we avoid a situation where the unforeseen and unintended consequences of a well-intentioned solution to a problem, actually makes the problem worse.
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© Jay Onwukwe
