gvA Update

The Economics of Unintended Consequences Ever heard of the cobra effect? The term originates from an anecdote from the time of British colonial rule in India. At the time, the British government was concerned about the number of venomous cobra snakes in Delhi. The government therefore offered a reward for every dead cobra. Initially this was a successful strategy, as large numbers of snakes were killed for the reward. However, it turned out, that eventually enterprising persons began to breed cobras for the income. When the government became aware of this, the reward program was scrapped. The consequence was that all of the cobras that had been bred had to be set free because they were now worthless, a situation that increased the cobra population in the wild. The apparent solution for the problem made the situation worse. In another example of unintended consequences, the Nigerian government was forced to maintain a very expensive fuel subsidy program in order to reduce the price of fuel for the masses. It wasn't long, before the program riddled with fraud, became too expensive to implement. To make matters worse crude oil prices dropped significantly, reducing Nigeria's ability to pay for the subsidy, as it imports much of its refined petroleum products, in spite of the fact that the country is the 12th largest producer of crude oil in the world. Eventually, matters came to a head as disagreement between the government and contracted fuel importers caused the price of fuel to more than double from the subsidized price, a clear unintended consequence of the subsidy program. Bottom line, it is not that the intentions to overcome the problems are bad, it is that the solutions are usually not well thought through. Our hidden economics for you.

 

Posted: Jun 10th, 2015 @ 02:38:11 AM