analyzes how compensation schemes change in reaction to anticipated bail-outs. If there is a risk-shifting problem, bail-out … becomes flatter and effort decreases. If both types of agency problems are present, a sufficiently large increase in bailout … perceptions makes it optimal for a welfare-maximizing regulator to impose caps on bank bonuses. In contrast, raising managers …

the performance measure and its similarity (congruity, congruence) to the benefit of the manager’s employer. A necessary …

mitigated by pay-for-performance incentives for managers who decide upon promotion. Second, we analyze matched employer … indeed substantially higher when managers receive performance-related pay or participate in gain sharing plans. …

Classic financial agency theory recommends compensation through stock options rather than shares to induce risk … excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk …-taking behavior is explained based on a richer array of risk attitudes derived from Prospect Theory. We use the model to derive …

Risk-neutral individuals take more risky decisions when they have limited liability. Risk-neutral managers may not when …