As they point out in the paper, there are some cases where risk is intentionally removed, such as through bankruptcy for businesses to protect entrepreneurs. I think that can have positive effects.
I'm not fully convinced that "academic economists, quantitative
modellers, and policy wonks"..."have no disincentive and are never penalized by their errors." I believe their reputation is at stake. The authors may mean they have no financial risk, but their reputation is tied to their future earnings. I'm not sure that's a bad thing as long as it's considered.
Overall I'd say there's nothing surprising in this paper, nor any specific proposals (as I hoped) but mostly a philosophical argument made in reaction to the current financial and political environment. I do agree with their premise. As a political view, I think "Skin in the Game" would make a pretty good slogan.
It would be interesting to implement distributed trust networks around this concept. If there are clear failure/success signals, you could have nodes present a bond which is destroyed on success and paid out on failure. Automated damages collection, I suppose.
To be fair, Fannie Mae changed its practices, engaging in the risky "financial innovations" that caused problems for a lot financial institutions, after Stiglitz' original study of their exposure to risk.
It is not as if Stiglitz was in control of the institution or encouraged that they engage in these more risky behaviors.
It is more like a doctor performing a check-up on a patient, which represents a mere snapshot in time, saying they're in good health. And then the patient decides it's okay to start smoking, eating fastfood for every meal, and giving up exercise. Are you going to blame the doctor for not warning this could happen?
I would say the stronger lesson is that continued checks and oversight are critical to the health of any institution or business. Though I do also agree and think people who make sloppy predictions should also be held accountable for their behavior.
As they point out in the paper, there are some cases where risk is intentionally removed, such as through bankruptcy for businesses to protect entrepreneurs. I think that can have positive effects.
Perhaps the point is that the risk is not removed in those cases, but reduced. Entrepreneurs clearly do have skin in the game, and bad decisions will affect them. At the same time, having a "safety net" that ensures bad decisions will not completely destroy an entrepreneur's life is clearly beneficial because it allows more people to try their hand at it.
As they point out in the paper, there are some cases where risk is intentionally removed, such as through bankruptcy for businesses to protect entrepreneurs. I think that can have positive effects.
I'm not fully convinced that "academic economists, quantitative modellers, and policy wonks"..."have no disincentive and are never penalized by their errors." I believe their reputation is at stake. The authors may mean they have no financial risk, but their reputation is tied to their future earnings. I'm not sure that's a bad thing as long as it's considered.
Overall I'd say there's nothing surprising in this paper, nor any specific proposals (as I hoped) but mostly a philosophical argument made in reaction to the current financial and political environment. I do agree with their premise. As a political view, I think "Skin in the Game" would make a pretty good slogan.
It would be interesting to implement distributed trust networks around this concept. If there are clear failure/success signals, you could have nodes present a bond which is destroyed on success and paid out on failure. Automated damages collection, I suppose.