It doesn't mention any negatives of requiring skin in the game. The most obvious is adverse selection: risk-averse people won't enter a profession where mistakes are severely punished, so you get only risk-seekers.
"The skin in the game heuristic is best viewed as a rule of thumb that places a pragmatic constraint on normative theories. Whatever the best moral theory (consequentialism, deontology, contractualism, virtue ethics, particularism etc.) or political ideology (socialism, capitalism, libertarianism) might be, the 'rule' tells us that we should be suspicious of people who appeal to it to justify actions that pass the cost of any risk-taking to another party whilst keeping the benefits for themselves."
Designers who wouldn't drive a car they designed. Doctors who wouldn't get treated in their own hospitals. That sort of thing.
The problem, to my mind, is how you'd motivate that sort of risk taking for people who are more powerful than those they're advising, or have different goals, or are in positions where they can't prove that they've skin in the game. I think most of us would, as a matter of course, get people to put their money where their mouth is if we could practically pin people down to it on a day to day basis. But, in reality, I might not choose to be treated in the hospital I work at because I can afford better care, or because I think some of the people there have it in for me, even if I'm an excellent doctor. I might not choose to drive a car I designed because I can afford a better one, or have different tastes.
etc etc.
And that's even in the case that I can show that I've skin in the game. I've worked jobs before where having any interests in the problem that might tempt you to fudge the results was grounds for not being employed.
It's very difficult to apply such a heuristic when I'm not necessarily playing the same game as you for the same prizes.
I don't think it's bad to require some skin in the game, but require too much and many risks that are quite beneficial to society as a whole just won't happen.
Made me think of this: http://www.youtube.com/watch?v=pM-igYjn6E4
The corporation sheilds from financial risk, thus enabeling an actual risk. When latter is missing the problem of lack of skin may appear.
By contrast, one of the functions of modern corporations is that culpability does not pass-through to the decision-makers. This is an actual removal of risk, not re-distribution, as there are consequences that a corporation is not capable of facing.
Creditors tend to be established firms and bankrupt companies tend to be new, small enterprises, so it seems that limited liability promotes socially beneficial risk-taking by offloading bad outcomes on those who are best able to absorb them. ... "From each according to his ability, ..."
One could imagine company law creating a same-again limitation on liability. If you invest a million dollars, you have two reasons to watch the management you appoint, first they could lose your investment. Second if they screw up and do a lot of damage the investors are on the hook for the same again; potentially another million dollars.
It is quite a tricky proposal to analyze. Consider the common practice of supplying goods on 30 days credit. It is slightly risky. The purchaser might go bust without paying. Under current once-only limitation of liability it is common for suppliers to lose out, which can cause a ripple effect as one company goes bust, causes its suppliers to fail causing their suppliers to fail...
Under same-again limited liability the ripples go in a different direction as investors liquidate assets to meet "second" liabilities.
They face rigorous scrutiny for their medical actions.
Startup founders.
Car designers.
Airline pilots.
Of course, all these guys have some skin in the game now. I'd argue that in all these professions, artificially increasing the penalties for failure wouldn't make the world better.
You feel safer if the pilot is in the airplane with you, and has his life at risk as much as yours, than e.g. if he was just remote-controlling the plane from his office
I think a lot of this depends upon whether the task calls for a rational or emotional response. For tasks that require a rational response, having "skin in the game" can cloud your judgment and make you perform worse than if you were a dispassionate observer. For tasks that require an emotional investment, you want the person's risks and incentives to be aligned with yours. (For example, you want a product designer to actually use the products they design, and you want a teacher to care about your kids as much as you care about them.)
A surgeon faces large legal risks for a botched surgery. A lawyer is likewise legally responsible for his actions. Doctors and lawyers are two of the professions with the most skin in the game!
I don't know enough about 9/11 dispatchers to say if they face liability.
On the other hand doctors have, compared to their patients, no skin in the game. If the patients health gets worse or the patient dies the doctor stays unharmed. This is partially the reason for overtreatment in medicine (the other one being the asymmetry between the rewards for positive/negative effects of treatment vs. no-treatment.)
Then what about driving ? By the same logic, car accidents should be much less. Flights are much safer due to the amount of research done in air-travel safety, in general, and also after every accident. And also because in roads you have too many cars interacting together at the same time, where any one person's small mistake can cause an accident, which is not the case with aeroplanes.
Yes, of course. But why? Why is the amount of safety research so much higher after a plane crashes compared to when a patient dies? Why are simple checklists common practice for pilotes but not for doctors even though they could save many lives [1].
As for car travel. It seems to be inherently more dangerous for the reasons you mention. But lets introduce a principal-agent problem [2] for car driving. Assume that for example taxi drivers would steer the vehicle from a save place say as a drone. Would you want to drive with such a taxi?
[1] Gigerenzer: Risk Savvy - How to make good decisions. [2] https://en.wikipedia.org/wiki/Principal–agent_problem