The cobra effect occurs when the solution to a problem, makes the problem worse. The term is used to illustrate the causes of wrong stimulation in economy and politics. The term stems from an anecdote set at the time of British rule of colonial India. The British government was concerned about the number of venomous cobra snakes. The Government therefore offered a reward for every dead snake. Initially this was a successful strategy as large numbers of snakes were killed for the reward. Eventually however the Indians began to breed cobras for the income.
When this was realized the reward was canceled, but the cobra breeders set the snakes free and the wild cobras consequently multiplied. The apparent solution for the problem made the situation even worse. A similar incident occurred in Hanoi, under French colonial rule, where a program paying people a bounty for each rat pelt handed in was intended to exterminate rats. Instead, it led to the farming of rats.
The Daily Omnivore 