IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Masters of the universe: How power and accountability influence self-serving decisions under moral hazard

  • Marko Pitesa


    (GEM - Grenoble Ecole de Management - Grenoble École de Management (GEM))

  • Stefan Thau


    (LBS - London Business School - London Business School)

Registered author(s):

    This paper provides an answer to the question of why agents make self-serving decisions under moral hazard and how their self-serving decisions can be kept in check through institutional arrangements. Our theoretical model predicts that the agents' power and the manner in which they are held accountable jointly determine their propensity to make self-serving decisions. We test our theory in the context of financial investment decisions made under moral hazard using others' funds. Across three studies, using different decision-making tasks, different manipulations of power and accountability, and different samples, we show that agents' power makes them more likely to behave in a self-serving manner under moral hazard, but only when the appropriate accountability mechanisms are not in place. Specifically, we distinguish between outcome and procedural accountability and show that holding agents accountable for their decision-making procedure reduces the level of self-serving decisions under moral hazard and also curbs the negative consequences of power. Implications for decisions under moral hazard, the psychology of power, and the accountability literature are discussed.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by HAL in its series Grenoble Ecole de Management (Post-Print) with number hal-00814565.

    in new window

    Date of creation: 04 Feb 2013
    Date of revision:
    Handle: RePEc:hal:gemptp:hal-00814565
    Note: View the original document on HAL open archive server:
    Contact details of provider: Web page:

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
    2. Carl Ackermann & Richard McEnally & David Ravenscraft, 1999. "The Performance of Hedge Funds: Risk, Return, and Incentives," Journal of Finance, American Finance Association, vol. 54(3), pages 833-874, 06.
    3. Stulz, Rene M., 2007. "Hedge Funds: Past, Present, and Future," Working Paper Series 2007-3, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:hal:gemptp:hal-00814565. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.