Thursday, 5 July 2018

This couldn't backfire, could it?... Paying farmers not to grow coca edition

One of my favourite topics in my ECONS102 class is the first topic, in part because we spend a bit of time considering the unintended consequences of (often) otherwise well-meaning policies. And there are so many examples to choose from, I just can't fit them all into that class. Here's a new one from The Economist last week:
The increased cultivation of coca in Colombia defied expectations that the government’s peace deal with the FARC guerrillas, who relied financially on drug trafficking, would curtail the cocaine trade. One explanation is a textbook example of the law of unintended consequences. The peace agreement required the government to make payments to coca farmers who switched to growing other crops. This wound up creating a perverse incentive for people to start planting coca, so they could receive compensation later on for giving it up.
As we discuss in my ECONS102 class, unintended consequences arise because of the incentives that a policy creates. The incentives to change behaviour arise because the benefits and/or costs have changed. In this case, the benefits of planting coca increased, because the farmers could then switch to another crop and claim the payment from the government. If they weren't growing coca, then they couldn't claim the payment, so an incentive was created to plant more coca. So the payments that were supposed to encourage farmers to plant less coca, actually encouraged farmers to plant more coca.

Of course, this has then led to an increase in the supply of coca, and a consequent increase in the supply of cocaine. Which is exactly the opposite of what was intended.

However, the effect here could be limited to the short run, because farmers can only switch away from planting coca once. So, the incentive to plant coca only occurs until the farmers have switched to something else. Supply should eventually fall. Although it wouldn't surprise me to learn that the incentive payment has been structured in such a way that clever farmers can claim it more than once!
As Steven Levitt and Stephen Dubner noted in their book Think Like a Freak (which I reviewed here), no individual or government will ever be as smart as all the people out there scheming to take advantage of an incentive plan.

No comments:

Post a Comment