Incentive compensation for risk managers when effort is unobservable
AbstractIn a financial intermediary, risk managers can expend effort to reduce loan probability of default and loss given default, but effort is unobservable. Incentive compensation (IC) can induce manager effort. When deposit insurance is subsidized, the demand for risk management declines. Regulatory policy should then reinforce incentives to offer risk mangers appropriate IC contracts.
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Bibliographic InfoPaper provided by American Enterprise Institute in its series Working Papers with number 39230.
Date of creation: Oct 2013
Date of revision:
AEI Economic Policy Working Paper Series;
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-14 (All new papers)
- NEP-CFN-2013-11-14 (Corporate Finance)
- NEP-CTA-2013-11-14 (Contract Theory & Applications)
- NEP-EXP-2013-11-14 (Experimental Economics)
- NEP-HRM-2013-11-14 (Human Capital & Human Resource Management)
- NEP-RMG-2013-11-14 (Risk Management)
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