Incentives can get the animal spirits out - even in the kindest of creatures

By George ILIEV
CorporateNature Metaphor Series, No 74.

Kelly the dolphin was an obedient and fast-learning mammal in a park on the Gulf of Mexico...until it all got out of whack. She was trained to bring pieces of rubbish from her pool and would receive a fish in reward. Then Kelly realised she could manipulate the system. First, as the reward did not depend on the size of the rubbish, Kelly started breaking up large pieces of paper into smaller pieces to get multiple rewards. Then, she figured out something even more sinister: if she used her reward fish as bait, a seagull would get tempted to fly into the water, Kelly would catch it, drown it and hand over the bird's body to get more rewards. Kelly also made sure to teach her child these tricks, who in turn taught other young dolphins.

Does this remind you of investment bankers before the 2008 global financial crisis? Just like Kelly the dolphin, they would chop up sub-prime mortgages into collateralised debt obligations (CDO) and got handsome rewards for doing it.

But who is to blame: the perpetrators, be they animals or humans? Or the human creators of the incentive systems?

Dolphin (Source: Wikipedia)

Panda negotiations resemble interest-only mortgages

By George ILIEV

Pandas are China's national treasure: rare and precious. China used to send them as a diplomatic gift to other countries. The first recorded case was in the 7th century when a Chinese empress sent a pair of giant pandas to the Japanese emperor. Between the 1950s to the 1980s China shipped out 23 pandas in total, to great fanfare. However, since the 1980s, China has been giving giant pandas to other countries only under a 10-year loan and usually charging an annual interest of $1 million per animal. After that the panda has to be returned but usually the lease is renegotiated, resembling an interest-only mortgage.

Panda negotiations between a foreign zoo and the Chinese Government can take time. However, on the side, zoos also have to negotiate with domestic environmental campaigners and animal rights groups and convince them that the "panda loan interest" payments will be spent by China for panda conservation programmes. Other interests may get entangled in the negotiations as well, e.g. political and trade lobbying. So most panda negotiations start to resemble an iceberg or, even more aptly, a polar bear: part of it above water and part of it under the surface.



When a zoo finds the price of a giant panda too high to bear (no pun intended), it can resort to a favourite tool of the finance industry: hedging. The zoos in Toronto and Calgary decided to hedge their panda exposure by signing a 10-year contract for one specimen and then taking turns to host it for five years each.

I wonder why the zoos that cannot afford a giant panda don't settle for a lesser panda. They are even cuter and need much less bamboo.