Bad incentives accelerate the problem you’re trying to solve, whether it’s piranhas or global warming.
A few days ago, a story emerged from southern China’s Guangxi Zhuang region involving piranhas. One local man was bitten on the palm by a piranha while catching the fish from a local river. The man brought the fish home, “whereupon one of his curious friends got too close to the fish and was also bitten.”
The local Liuzhou government attempted to quell fears by issuing a bounty for the fish, a reward for 1,000 yuan ($160). So internet retailers started selling the offending fish online at cut rate prices:
The reward nonetheless became a death sentence on other aquatic life in the river as thousands of locals swarmed to the riverside and hauled over 90 kilograms of various unoffending fish from the water.
Ads offering to sell piranhas proliferated meanwhile on Taobao, China’s leading online trading platform, with one vendor offering express delivery of piranhas for US$1.80 per fish from Ningbo in the coastal province of Zhejiang — some 1,600 kilometers from Liuzhou, according to state broadcaster China National Radio.
The government canceled the program when it became apparent that more piranha’s might be left in the river, “as people may buy them cheaply and release them deliberately.”
The story cleanly follows the “amateur capitalism” trope of China news. It functions as a pat on our back, that the ‘backwater’, ‘disorganized’ Chinese government and fishermen mutate market incentives into farce.
But bad incentives are equal opportunity hazards. Today there’s a fantastic example in the NYT regarding carbon offsets:
But where the United Nations envisioned environmental reform, some manufacturers of gases used in air-conditioning and refrigeration saw a lucrative business opportunity.
They quickly figured out that they could earn one carbon credit by eliminating one ton of carbon dioxide, but could earn more than 11,000 credits by simply destroying a ton of an obscure waste gas normally released in the manufacturing of a widely used coolant gas. That is because that byproduct has a huge global warming effect. The credits could be sold on international markets, earning tens of millions of dollars a year.
That incentive has driven plants in the developing world not only to increase production of the coolant gas but also to keep it high — a huge problem because the coolant itself contributes to global warming and depletes the ozone layer.
So since 2005 the 19 plants receiving the waste gas payments have profited handsomely from an unlikely business: churning out more harmful coolant gas so they can be paid to destroy its waste byproduct. The high output keeps the prices of the coolant gas irresistibly low, discouraging air-conditioning companies from switching to less-damaging alternative gases.
Wonder if the UN will have as much sense as the Liuzhou government.