Making The Price Of Failure Too High: Dubai Edition

From Messy Nessy Chic: So in Dubai, the number of Abandoned Luxury Cars lying around is kind of a Problem

dubai-airport

What this airport needs is more really long term parking

When designing a civil society, one of the knobs you get to adjust is how strongly you penalize failure.  If you turn the knob too far to the left, making penalties too mild, you risk moral hazard in which entrepreneurs will take risky bets, confident if things don’t work out they can always walk away.  The result is a low trust society where you won’t be able to raise capital or find a counterparty for a contract.  In short, being an entrepreneur is such a good deal no one will let you become one.

The opposite occurs when turning the knob too far to the right, making the penalties too harsh and choking off risk-taking.  The classic example is Japan, where a failed business owner can stew in shame and isolation for years.

There’s a sweet spot in the middle with enough incentive to husband your resources and protect your investors and lenders, but still enough opportunity to take risks.

Dubai seems to be suffering from “the knob is too far to the right” syndrome.  Unpaid debt is a criminal offense and a foreigner can be imprisoned for it.  When an overextended Master of the Universe with a foreign passport feels the walls closing in, sometimes the best strategy is to drive to the airport and fly away, never to return.  It’s a sort of bankruptcy by one-way ticket and it reminds one of gentler times when it could be done only by sailing ship.

The result is a surfeit of abandoned luxury cars at the Dubai airport.  There are complaints of not enough parking spaces for passengers who actually plan to return.

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