Incentive Roots of Managerial (Excessive) Risk Taking and an Assesment of Policy Responses

There are many incentive factors affecting managers’ risk appetite. This study reviews the incentive literature and analyses arguments highlighting the impact of implicit and explicit incentives on managerial risk taking and the results of empirical studies on the issue. The paper also assesses main policy responses against excessive risk taking and concludes that current policies centered on fixing contractual schemes are not adequate to fix these incentive problems.