Recent history has shown that current FTP solutions do not fully capture risks. Examples from the savings and loans crisis in the 1970s to the financial crisis of the last decade show the severity of mispricing – from the provision of wrong incentives, exorbitant losses and in some cases, the downfall of businesses.
By applying theory and practice, this paper demonstrates how FTP solutions can be improved to avoid funnelling investments towards unprofitable business.
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