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Quantifying Moral Hazard: A Reply to Gary Richardson

Author

Listed:
  • Linda M. Hooks
  • Kenneth J. Robinson

Abstract

In his comment on our 2002 Journal of Economic History paper, Gary Richardson (2007) proposes that our work specifies moral hazard too narrowly. Richardson posits that fixed-rate deposit insurance leads to moral hazard which takes many forms. These include not only the usual notion of risk-taking in the asset portfolio, but also mismanagement, malfeasance, and reduced incentives for depositor monitoring. We agree with his hypothesis and offer some evidence in support of additional avenues for moral hazard to have played a role in the activities of Texas banks in the 1920s.

Suggested Citation

  • Linda M. Hooks & Kenneth J. Robinson, 2007. "Quantifying Moral Hazard: A Reply to Gary Richardson," Econ Journal Watch, Econ Journal Watch, vol. 4(3), pages 303-307, September.
  • Handle: RePEc:ejw:journl:v:4:y:2007:i:3:p:303-307
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    More about this item

    Keywords

    Deposit insurance; moral hazard; defalcation; mismanagement; bank failure;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • N2 - Economic History - - Financial Markets and Institutions
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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