The Tired Tale of Bad Incentives

Hi,

Here’s a great way oil companies could lower their “obscene profits”: give all of their employees massive raises. Or, they could go on a wild spending spree on unprofitable investments. Or, they could take all of their cash and place a massive wager on the betting markets that the Democrats will win big in the midterms.

In other words, they could boost their costs, bad investments, or losses so their profits shrink or even disappear.

Obviously—or, I should say, “It should be obvious that”—there are some big problems with this approach. First, it would be very stupid. But there’s no law against being stupid with your money, right?

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