The lore goes that in British India, the city of Delhi was infested with cobras, so the administration announced a cash reward for submission of dead cobras. What did this policy do?
People of Delhi started rearing cobras, killing them, and then taking them to the authorities to collect their cash rewards. Instead of reducing Delhi’s cobra population, the policy turned the city’s homes into cobra farms. The administration was spending more and
more money, and the cobra population was increasing.
No one knows if this story is true. But it has come to be known as the cobra effect to demonstrate how governments often create wrong incentives for people and make policies that result in worsening problems rather than solving them
Excerpt taken from Puja Mehra article in Wealth Insight