Ops Development & AI Practice

Sep 21, 2026 · Industry Insights

Why Rules Fail to Stop Bad Actors: From Buffett to Mechanism Design

This article explains why detailed rules fail to constrain unscrupulous individuals, analyzing the deadlock of internal and external supervision through incomplete contract theory and principal-agent problems, then demonstrates how mechanism design and incentive compatibility — illustrated by historical cases like British convict transport and the SEC whistleblower program — can align self-interest with organizational goals.