IDEAS home Printed from https://ideas.repec.org/p/red/sed012/182.html
   My bibliography  Save this paper

Moral hazard credit cycles with risk-averse agents

Author

Listed:
  • Roger Myerson

    (University of Chicago)

Abstract

We consider a simple overlapping-generations model with risk-averse financial agents subject to moral hazard. Efficient contracts for such financial intermediaries involve back-loaded late-career rewards. Compared to the analogous model with risk-neutral agents, risk aversion tends to reduce the growth of agents' responsibilities over their careers. This moderation of career growth rates can reduce the amplitude of the widest credit cycles, but it also can cause small deviations from steady state to amplify over time in rational-expectations equilibria. We find equilibria in which fluctuations increase until the economy enters a boom/bust cycle where no financial agents are hired in booms.

Suggested Citation

  • Roger Myerson, 2012. "Moral hazard credit cycles with risk-averse agents," 2012 Meeting Papers 182, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:182
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2012/paper_182.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gary S. Becker & George J. Stigler, 1974. "Law Enforcement, Malfeasance, and Compensation of Enforcers," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 1-18, January.
    2. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    3. Roger B. Myerson, 2012. "A Model of Moral-Hazard Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(5), pages 847-878.
    4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kikuchi, Tomoo & Stachurski, John & Vachadze, George, 2018. "Volatile capital flows and financial integration: The role of moral hazard," Journal of Economic Theory, Elsevier, vol. 176(C), pages 170-192.
    2. Hashimoto, Ken-ichi & Im, Ryonghun & Kunieda, Takuma & Shibata, Akihisa, 2022. "Financial destabilization," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    3. Takao Asano & Masanori Yokoo, 2017. "Chaotic Dynamics of a Piecewise Linear Model of Credit Cycles with Imperfect Observability," KIER Working Papers 967, Kyoto University, Institute of Economic Research.
    4. Matsuyama, Kiminori & Sushko, Iryna & Gardini, Laura, 2016. "Revisiting the model of credit cycles with Good and Bad projects," Journal of Economic Theory, Elsevier, vol. 163(C), pages 525-556.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kikuchi, Tomoo & Stachurski, John & Vachadze, George, 2018. "Volatile capital flows and financial integration: The role of moral hazard," Journal of Economic Theory, Elsevier, vol. 176(C), pages 170-192.
    2. Arnold Lutz, 2000. "Α Model of Debt Deflation and the Phillips Curve: Implications for Business Cycles and the Balance Sheet Channel of Monetary Policy / Schulden-Deflation und die Phillips-Kurve: Implikationen für Konju," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 220(4), pages 385-399, August.
    3. Haltiwanger, John & Waldman, Michael, 1991. "Responders versus Non-responders: A New Perspective on Heterogeneity," Economic Journal, Royal Economic Society, vol. 101(408), pages 1085-1102, September.
    4. Olivier Blanchard, 2000. "What Do We Know about Macroeconomics that Fisher and Wicksell Did Not?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1375-1409.
    5. Günther G. Schulze & Björn Frank, 2003. "Deterrence versus intrinsic motivation: Experimental evidence on the determinants of corruptibility," Economics of Governance, Springer, vol. 4(2), pages 143-160, August.
    6. Axelson, Ulf & Bond, Philip, 2015. "Wall Street occupations," LSE Research Online Documents on Economics 37448, London School of Economics and Political Science, LSE Library.
    7. Waters, George A., 2013. "Quantity rationing of credit and the Phillips curve," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 68-80.
    8. Yang, Der-Yuan, 2008. "On the elements and practices of monitoring," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 654-666, March.
    9. Vincenzo SPIEZIA, 2002. "The greying population: A wasted human capital or just a social liability?," International Labour Review, International Labour Organization, vol. 141(1-2), pages 71-113, March.
    10. Frisell, Lars & Roszbach, Kasper & spagnolo, giancarlo, 2008. "Governing the Governors: A Clinical Study of Central Banks," Working Paper Series 221, Sveriges Riksbank (Central Bank of Sweden).
    11. Tetteh, Rebecca & Mohammed, Safura & Ahmed Azumah, Ayisha, 2017. "What is the effect of wages and supervision on productivity? The perspective of Sunyani Technical University staff," MPRA Paper 81473, University Library of Munich, Germany.
    12. Forand, Jean Guillaume, 2019. "Civil service and the growth of government," Journal of Public Economics, Elsevier, vol. 177(C), pages 1-1.
    13. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    14. Mitchell Hoffman & Elizabeth Lyons, 2020. "A time to make laws and a time to fundraise? On the relation between salaries and time use for state politicians," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1318-1358, August.
    15. Paul Hek & Daniel Vuuren, 2011. "Are older workers overpaid? A literature review," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 436-460, August.
    16. Brice Corgnet, 2018. "Rac(g)e Against the Machine? Social Incentives When Humans Meet Robots," Post-Print halshs-01984467, HAL.
    17. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    18. Brandts, Jordi & Corgnet, Brice & Hernán-González, Roberto & Ortiz, José Mª & Solà, Carles, 2021. "Watching or not watching? Access to information and the incentive effects of firing threats," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 672-685.
    19. Matsuyama, Kiminori & Sushko, Iryna & Gardini, Laura, 2016. "Revisiting the model of credit cycles with Good and Bad projects," Journal of Economic Theory, Elsevier, vol. 163(C), pages 525-556.
    20. Borcan, Oana & Lindahl, Mikael & Mitrut, Andreea, 2014. "The impact of an unexpected wage cut on corruption: Evidence from a “Xeroxed” exam," Journal of Public Economics, Elsevier, vol. 120(C), pages 32-47.
    21. Driscoll, John C. & Holden, Steinar, 2014. "Behavioral economics and macroeconomic models," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 133-147.

    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed012:182. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.