For example:

• paying the executives of corporations proportionately to the size of their corporation, intended to encourage them to grow their companies by trading, has caused many of them to pursue mergers to grow their companies, to the detriment of their shareholders
• funding fire departments by the number of fire calls made, intended to reward the fire departments that do the most work, discourages them from fire-prevention activities
• in India, a program paying people a bounty for each rat pelt handed in, intended to exterminate rats, led instead to rat farming
• requiring strong passwords for access control systems causes many users to write their passwords down (as they are now impossible to remember), negating the security advantage of strong passwords.
• "Three-strikes laws" which are intended to be tough on criminals, but actually encourage them to murder people to avoid getting caught, as the sentence for murder is no worse than the consequences of being caught for the third time.
• Banning drugs for all people, which can make drug dealers more likely to sell to children, because when it is legal for adults only it is usually more profitable for drug dealers to sell only to adults in order to avoid arrest. When it is illegal for everyone then the drug dealers have no incentive not to sell to children and will therefore be more likely to do so.

Table of contents

1 See also 2 References 3 External references

See also

• moral hazard