History provides leaders with timeless lessons on how human behavior adapts to incentives. One of the most striking cases is the Rat Effect, which unfolded in French colonial Hanoi in the early 20th century. Intended to solve a public health crisis, the policy instead revealed how poorly designed rewards can magnify the very problem they seek to eliminate.
The Context: Colonial Hanoi and Public Health
At the turn of the 20th century, Hanoi, then under French colonial administration, faced a severe rat infestation. The city’s newly constructed sewer system, designed to mimic Parisian infrastructure, inadvertently created an ideal breeding ground for rodents. These rats carried plague and disease, posing a serious threat to public health (Vann, 2003).
To combat this, colonial authorities devised what seemed like a rational policy: offer financial rewards for every rat tail turned in. The logic was simple — more rat tails collected would mean fewer rats in circulation, reducing disease risk.
The Unintended Consequences
At first, the scheme appeared to work. Thousands of rat tails were collected and citizens eagerly participated. But soon, French officials noticed something peculiar: while tails kept arriving, live rats were still rampant in the city. Upon investigation, they discovered that citizens were cutting off tails and releasing the rats back into the sewers to continue breeding.
Even worse, some entrepreneurial individuals began breeding rats for the sole purpose of harvesting tails, turning the bounty into a business. Instead of eradicating the infestation, the policy fueled a rat economy that ensured the problem multiplied.
This episode became a textbook case of a perverse incentive — where a well-intentioned policy backfires because people respond rationally to the incentive but irrationally to the goal.
Theoretical Insights
Sociologist Robert K. Merton (1936) described such scenarios as unanticipated consequences of purposive action. The Hanoi case illustrates how incomplete foresight leads to systemic failure.
Similarly, Kerr’s (1975) classic essay, On the Folly of Rewarding A, While Hoping for B, resonates here. The French administration wanted fewer rats (B) but rewarded rat tails (A). Citizens, acting rationally, optimized for the reward, not the intended outcome.
From an economic standpoint, the Rat Effect aligns with the concept of Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure.” By turning rat tails into the metric of success, the authorities destroyed its usefulness as an indicator of actual rodent decline.
Lessons for Leadership and Policy
The Rat Effect is not merely a historical curiosity; it mirrors modern challenges in governance, management, and HR. Leaders often fall into the same trap: designing policies that reward measurable outputs rather than desired outcomes.
1. Anticipate gaming of incentives
Employees, citizens, or stakeholders will often exploit loopholes in incentive systems. For example, call center bonuses tied to call volume can lead to rushed conversations rather than quality service.
2. Prioritize holistic outcomes, not narrow metrics
Focusing on tails instead of rats is equivalent to measuring short-term KPIs without considering their long-term consequences. Systems thinking (Senge, 1990) is essential to anticipate second- and third-order effects.
3. Build feedback loops
Rigid policies, once implemented, can spiral out of control. Feedback mechanisms allow leaders to detect early signs of unintended behavior and adjust incentives before they become counterproductive.
4. Pilot before scaling
Testing a scheme on a smaller scale could have revealed perverse behaviors before the policy spread across the city.
Contemporary Parallels
- Wells Fargo (2016): Aggressive sales targets pushed employees to create millions of fake accounts.
- Educational testing regimes: Overemphasis on standardized scores encourages rote learning rather than true knowledge.
- Healthcare productivity metrics: Incentives tied to patient numbers lead to quantity over quality of care.
Each reflects the same lesson: without foresight, metrics designed to guide progress become detached from the actual mission.
Conclusion
The Rat Effect in colonial Hanoi demonstrates that human behavior, when aligned with misaligned incentives, can undermine even the most rational policy. Leaders, whether in governance or corporate management, must recognize that people respond to rewards as structured — not as intended.
Effective leadership therefore requires designing incentives with systemic awareness, humility, and adaptability. Otherwise, history repeats itself — and like in Hanoi, the rats keep running free while the tails pile up.
📚 Key References:
- Vann, M. G. (2003). Of Rats, Rice, and Race: The Great Hanoi Rat Massacre, 1902–1903. Journal of Social History.
- Merton, R.K. (1936). The Unanticipated Consequences of Purposive Social Action. American Sociological Review.
- Kerr, S. (1975). On the Folly of Rewarding A, While Hoping for B. Academy of Management Journal.
- Senge, P. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization.