Comments on: Disincentive http://www.vkpedia.com/2009/02/25/disincentive/ a repository of (mostly) useless information, since 2005 Thu, 09 Feb 2012 02:42:35 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Vijay Narayanan http://www.vkpedia.com/2009/02/25/disincentive/comment-page-1/#comment-246514 Vijay Narayanan Thu, 26 Feb 2009 13:23:23 +0000 http://www.vkpedia.com/?p=1083#comment-246514 Agreed that the shareholder can be treated as an entrepreneur. Her disincentive is that she loses money if her investments go down in value. She does not collect fat bonuses every year. In essence, the shareholder (used an equivalent of "small-time investor") does not have a "free option", but the banker does. We must also note that the banker profits greatly from information asymmetry -- a factor that would drive a wedge in our thinking the shareholder can be treated as an entrepreneur, because the latter does not suffer as much IA as the former. Agreed that the shareholder can be treated as an entrepreneur. Her disincentive is that she loses money if her investments go down in value. She does not collect fat bonuses every year. In essence, the shareholder (used an equivalent of “small-time investor”) does not have a “free option”, but the banker does.

We must also note that the banker profits greatly from information asymmetry — a factor that would drive a wedge in our thinking the shareholder can be treated as an entrepreneur, because the latter does not suffer as much IA as the former.

]]> By: Gokul http://www.vkpedia.com/2009/02/25/disincentive/comment-page-1/#comment-246507 Gokul Thu, 26 Feb 2009 11:28:40 +0000 http://www.vkpedia.com/?p=1083#comment-246507 I don't consider the term 'entrepreneur' to be necessarily a variable of time. While I agree that in a smaller, younger start-up the entrepreneur 'lives and dies' by the risks he takes, its equally true for a shareholder in a well established corporation. Now, my understanding of Nassim's article leads me to - what is the dis-incentive that caused normally-shrewd and stable risk-taking shareholders to place their money on bankers (assuming the bankers were in the game purely for their bonuses). I don’t consider the term ‘entrepreneur’ to be necessarily a variable of time. While I agree that in a smaller, younger start-up the entrepreneur ‘lives and dies’ by the risks he takes, its equally true for a shareholder in a well established corporation.

Now, my understanding of Nassim’s article leads me to – what is the dis-incentive that caused normally-shrewd and stable risk-taking shareholders to place their money on bankers (assuming the bankers were in the game purely for their bonuses).

]]> By: Vijay Narayanan http://www.vkpedia.com/2009/02/25/disincentive/comment-page-1/#comment-246392 Vijay Narayanan Wed, 25 Feb 2009 20:34:35 +0000 http://www.vkpedia.com/?p=1083#comment-246392 Not necessarily. Who is the entrepreneur at Lehman Brothers? Or Morgan Stanley? These firms have moved beyond that stage, haven't they? Not necessarily. Who is the entrepreneur at Lehman Brothers? Or Morgan Stanley? These firms have moved beyond that stage, haven’t they?

]]> By: Gokul http://www.vkpedia.com/2009/02/25/disincentive/comment-page-1/#comment-246390 Gokul Wed, 25 Feb 2009 20:12:18 +0000 http://www.vkpedia.com/?p=1083#comment-246390 isn't it an entrepreneur ultimately who signs the cheque of his banker-employee to give him his bonus, anyway? isn’t it an entrepreneur ultimately who signs the cheque of his banker-employee to give him his bonus, anyway?

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