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A Marketing Scheme for Making Money off Innocent People: A User’s Manual

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  • Kaushik Basu

Abstract

Firms often give away free goods with the product that they sell. Firms often give stock options to their top management and other employees. Mixing these two practices—giving stock options to consumers who buy the firm’s product—, creates a deadly brew. Large numbers of consumers can be lured into buying this product, giving the entrepreneur huge profits and the consumers a growing profit share. But this is a camouflaged Ponzi that will ultimately crash. By analogy it is argued that the common practice of giving stock options to employees can be a factor behind financial crashes. The aim of the paper is to help create a better regulatory structure.

Suggested Citation

  • Kaushik Basu, 2009. "A Marketing Scheme for Making Money off Innocent People: A User’s Manual," Working Papers id:2341, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:2341
    Note: Institutional Papers
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    References listed on IDEAS

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    1. Tirole, Jean, 1982. "On the Possibility of Speculation under Rational Expectations," Econometrica, Econometric Society, vol. 50(5), pages 1163-1181, September.
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    3. Dilip Abreu & Markus K. Brunnermeier, 2003. "Bubbles and Crashes," Econometrica, Econometric Society, vol. 71(1), pages 173-204, January.
    4. Kaushik Basu & Tapan Mitra, 2003. "Aggregating Infinite Utility Streams with InterGenerational Equity: The Impossibility of Being Paretian," Econometrica, Econometric Society, vol. 71(5), pages 1557-1563, September.
    5. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-1011, Sept.-Oct.
    6. Basu, Kaushik & Mitra, Tapan, 2007. "Utilitarianism for infinite utility streams: A new welfare criterion and its axiomatic characterization," Journal of Economic Theory, Elsevier, vol. 133(1), pages 350-373, March.
    7. Brock, William A, 1970. "An Axiomatic Basis for the Ramsey- Weizsacker Overtaking Criterion," Econometrica, Econometric Society, vol. 38(6), pages 927-929, November.
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    Cited by:

    1. Kaushik Basu, 2009. "A Simple Model of the Financial Crisis of 2007-9 with Implications for the Design of a Stimulus Package," Working Papers id:2179, eSocialSciences.

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    More about this item

    Keywords

    employees; money; marketing; financial; entrepreneur; stock options; financial scams; product bundling; firms; consumers; employees; product; profit share; strategy; law; loans;
    All these keywords.

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