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Risk Taking Incentives and the Great Financial Crisis *

Abstract : High leverage distorts the purpose of limited liability. Limited liability is a design feature intended to promote risk taking. It is not appropriate in situations where decision-makers are prone to socially excessive risk taking. While much progress has been made to correct risk taking incentives in banking under Basel 3, not enough has been done to address the toxic cocktail resulting from combining high leverage with limited liability. Deferred compensation schemes should be generalized and bonus payments in the form of high trigger Cocos should be promoted.
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Preprints, Working Papers, ...
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https://halshs.archives-ouvertes.fr/halshs-01571627
Contributor : Caroline Bauer Connect in order to contact the contributor
Submitted on : Thursday, August 3, 2017 - 10:46:39 AM
Last modification on : Thursday, September 1, 2022 - 8:44:06 AM

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  • HAL Id : halshs-01571627, version 1

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Jean-Pierre Danthine. Risk Taking Incentives and the Great Financial Crisis *. 2017. ⟨halshs-01571627⟩

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