But it needs to be calibrated carefully, because setting too high a hurdle quite simply creates the wrong incentives. After all, there are good reasons why model calculations are designed such that higher risks require more capital, and lower risks less. If this straightforward principle were undermined by an excessively high output floor, it would be to the detriment of risk sensitivity.
Even as Prof. Brahmananda’s research interests spanned a wide spectrum and he will be remembered for a number of significant contributions, his most enduring legacy is the “wagegoods model” he developed in the 1950s which provided the inspiration for what came to be known as the “Bombay School of Thought”.