Perverse incentive is an interesting concept with an intriguing name. Few things are labeled as perverse, so this term has some cachet as an unknown entity. In this entry, perverse incentives will be defined, explained, and contextualized in several industries. It should be noted that perverse incentives rarely succeed.
A different interpretation is that a perverse incentive is one that causes unintended and undesirable consequences for the source of the incentive and the recipient. In the environmental context, perverse incentives are considered harmful to biodiversity, frequently as an unanticipated result of public policies with far different objectives.
An operational definition of a perverse incentive is that it is a reward offered to someone to do something that results in unintended negative consequences for another stakeholder. For example, Forbes shared the story of a husband and wife who were having difficulty teaching their two young boys to pick up their toys.
A half-dozen such contexts will be provided, including archaeology, medicine, the environment, school and literacy projects, economics, and French rat quotas.
An initial context of a perverse incentive involves archaeology. Paleontologists in the 19th century would pay Chinese peasants a fee for every fossil fragment that the local citizens brought in to them. As a result, if they discovered an intact, undamaged dinosaur artifact, the peasants would smash it into as many fragments as possible to maximize the profit they realized in the transaction.
