Hi Gunnar,
Great explanation of the issues. There's a transaction cost explanation that
incorporates what you wrote and your extra 2 paras and also   includes my
previous suggestions as to why contracting responsibility with designer is
useful. It is supported by Deming and quality improvement. Pushed for time
today. Will write more tomorrow.
Cheers,
Terry

-----Original Message-----
From: [log in to unmask]
[mailto:[log in to unmask]] On Behalf Of Gunnar Swanson
Sent: Thursday, 16 April 2015 8:18 AM
To: PhD-Design - This list is for discussion of PhD studies and related
research in Design
Subject: Re: Design Studies and Design History

> On Apr 15, 2015, at 6:36 PM, Ken Friedman <[log in to unmask]>
wrote:
> 
> A contract in which publishers pay designers if and only if projects reach
predicted sales goals while designers pay publishers for any losses or costs
if sales do not reach predicted goals is a case of perverse incentives. This
model gives designers a chance to participate in the market economy in much
the same way that ordinary investors took part in the Global Financial
Crisis.


It is not uncommon to have people request spec work. Speculative work is a
gamble with much worse odds than the one in my first paragraph. If I do work
based on the promise to pay if my work is the best and I am competing
against four other designers, the price would need to be five times normal
to make sense. (If that's not obvious, see
http://www.underconsideration.com/speakup/archives/001804.html)

If a publisher accepts legal liability for a book I write, the publisher is
making a bet and needs to get paid for that. If I accept the legal
liability, I need to be paid more or my business will not be viable. (That's
what the insurance business is--making book on such risks.) A gambler who
always bets on straight odds will eventually go broke. It's why casinos and
bookies take a little extra. It's called the vig. (That's short for
vigorish.)

If I gamble that a project will make a certain amount and I don't get paid
unless it does, I need to cover that bet by being paid more--the risk plus a
vig. If I gamble that a project will make a certain amount and I have to pay
if it doesn't, I need to cover that bet by being paid more--the risk plus
the vig. If I have to do extra work to be prepared to make such a bet, I
need to get paid more--the cost of that preparation plus a profit.

If someone agrees to pay me the amount that the previous paragraph adds up
to, that client is, essentially, buying a big, fairly expensive insurance
policy. They are taking a side bet that the project will fail. (Insurance is
always, essentially, betting against yourself.)

If, on the other hand, they can get me to take the risk for free, the end
result is that I will be out of business.


Gunnar

Gunnar Swanson
East Carolina University
graphic design program

http://www.ecu.edu/cs-cfac/soad/graphic/index.cfm
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Gunnar Swanson Design Office
1901 East 6th Street
Greenville NC 27858
USA

http://www.gunnarswanson.com
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+1 252 258-7006


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