Hidden Bibliographic Details
| Other authors / contributors: | International Monetary Fund, publisher.
International Monetary Fund. Monetary and Capital Markets Department, issuing body.
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| ISBN: | 9781475543254
1475543255
1475543301
9781475543308
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| Notes: | "September 2016."
At head of title: International Monetary Fund, Monetary and Capital Markets.
Includes bibliographical references (pages 36-37).
Online resource; title from pdf title page (IMF.org Web site, viewed November 4, 2016).
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| Summary: | This paper develops a theoretical framework to study the impact of bonus caps on banks' risk taking. In the model, labor market price adjustments can offset the direct effects of bonus caps. The calibrated model suggests that bonus caps are only effective when bank executives' mobility is restricted. It also suggests, irrespective of the degree of labor market mobility, bonus caps simultaneously reduce risk shifting by bank executives (too much risk taking because of limited liability), but aggravate underinvestment (bank executives foregoing risky but productive projects). Hence, the welfare effects of bonus caps critically depend on initial conditions, including the relative importance of risk shifting versus underinvestment.
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| Other form: | Print Version: Asai, Kentaro. Is Capping Executive Bonuses Useful? Washington, D.C. : International Monetary Fund,2016 9781475543254
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| Standard no.: | 10.5089/9781475543254.001
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