Risk-Taking and Risk-Sharing Incentives under Moral Hazard

2014 ◽  
Vol 6 (1) ◽  
pp. 58-90 ◽  
Author(s):  
Mohamed Belhaj ◽  
Renaud Bourlès ◽  
Frédéric Deroïan
Keyword(s):  
Developing Countries ◽  
Moral Hazard ◽  
Risk Taking ◽  
Risk Sharing ◽  
Investment Risk ◽  
Two Agents ◽  
The Impact ◽  
Informal Risk Sharing ◽  
Risky Technology ◽  
Level Of Risk

This paper explores the effect of moral hazard on both risk-taking and informal risk-sharing incentives. Two agents invest in their own project, each choosing a level of risk and effort, and share risk through transfers. This can correspond to farmers in developing countries, who share risk and decide individually upon the adoption of a risky technology. The paper mainly shows that the impact of moral hazard on risk crucially depends on the observability of investment risk, whereas the impact on transfers is much more utility dependent. (JEL D81, D82, D86, G22)

Informal Risk Sharing, Index Insurance, and Risk Taking in Developing Countries

2013 ◽  
Vol 103 (3) ◽  
pp. 375-380 ◽  
Author(s):  
Ahmed Mushfiq Mobarak ◽  
Mark R Rosenzweig
Keyword(s):  
Developing Countries ◽  
General Equilibrium ◽  
Risk Taking ◽  
Risk Sharing ◽  
Census Data ◽  
Index Insurance ◽  
Insurance Contracts ◽  
Agricultural Laborers ◽  
Informal Risk Sharing

Preliminary findings are presented from a research project which examined the interactions between informal risk sharing, index insurance and risk-taking. Rainfall insurance contracts were randomly offered to cultivating and landless households in a set of Indian villages where preexisting census data on caste networks allowed the characterization of the nature and extent of informal risk sharing. We study how informal risk sharing mediates the demand for index insurance, whether index insurance or informal indemnification allows farmers to invest in risky technologies, and the general equilibrium effects of offering insurance contracts to cultivators and agricultural laborers.

Moral hazard and risk-taking incentives in Islamic banks, does franchise value matter!

2017 ◽  
Vol 10 (1) ◽  
pp. 42-59 ◽  
Author(s):  
Mehdi Mili ◽  
Sami Abid
Keyword(s):  
Moral Hazard ◽  
Risk Taking ◽  
Bank Risk ◽  
Islamic Banks ◽  
Total Risk ◽  
Empirical Examination ◽  
Content Type ◽  
Islamic Bank ◽  
Franchise Value ◽  
The Impact

Purpose This paper aims to examine risk-taking in Islamic banks by exploring moral hazard and owner/manager agency problems simultaneously. Design/methodology/approach The authors propose to estimate a model of bank risk-taking that includes both franchise value and ownership structure as explanatory factors of bank risk. Findings The results show that franchise value is an important determinant of Islamic bank risk-taking. Banks with high franchise values are less likely to take risks than banks with low franchise value. In contrast, outside block holders have, at best, limited influences on bank risk-taking. Originality/value This paper conducts the first empirical examination of the relationship between managerial risk preferences and Islamic banks ownership. The authors examine simultaneously the effect of franchise value and owner/manager problem on Islamic bank risk taking behavior. They consider separately the impact on total risk, systematic risk and bank specific risk.

scholarly journals The Impact of Regulatory Capital on Risk Taking By Pakistani Banks

2019 ◽  
Vol 2 (2) ◽  
pp. 94-103 ◽  
Author(s):  
Muhammad Sajjad Hussain ◽  
Dr. Muhammad Muhaizam Musa ◽  
Dr. Abdelnaser Omran
Keyword(s):  
Developing Countries ◽  
Risk Taking ◽  
Implementation Process ◽  
Policy Implications ◽  
Capital Regulation ◽  
Regulatory Capital ◽  
Minimum Capital ◽  
Capital Ratios ◽  
Capital Regulations ◽  
The Impact

Objective - The objective of this study is to examine the relationship between capital regulation and risk-taking by the banks of Pakistan.  Design - This study was conducted on all the commercial banks of Pakistan and data were collected from the year 2005 to 2016.  Findings - This study concluded the significant positive relationship between regulatory capital and risk-taking by banks in Pakistan. The findings of this study play a key role in the implementation of capital regulations in the banks of developing countries.  Policy Implications - In the light of this study, the regulators must revise their implementation process of the Basel Accord capital regulations in the banks of developing countries. The prime intention of regulators are only on to maintain the minimum capital ratios but must be conscious of other important elements of capital regulation implications.  Originality - This study is one of the first attempts that investigated the crucial role of regulatory capital towards risk-taking in the Pakistani context.

scholarly journals Risk and Income Evaluation Decision Model of PPP Project Based on Fuzzy Borda Method

2021 ◽  
Vol 2021 ◽  
pp. 1-10
Author(s):  
Longbo Du ◽  
Jing Gao
Keyword(s):  
Decision Making ◽  
Social Capital ◽  
Risk Sharing ◽  
Investment Risk ◽  
Research Results ◽  
Effect Theory ◽  
Project Risks ◽  
Project Participants ◽  
The Government ◽  
The Impact

In order to effectively analyze the risk-return decision-making model of PPP project by Yuan et al., (2020) this paper, based on the fuzzy Borda method and synergy effect theory, considers the synergistic effect of PPP project, constructs the model of investment risk sharing, incentive, and supervision punishment, and determines the investment risk sharing, incentive, and PPP project investment. This paper also aims to supervise and punish the decision-making mechanism to achieve the goals of the PPP project. The research results show that the increased synergy of project participants not only reduces the impact of investment risk on project revenue but also promotes project participants to increase their willingness to undertake risks, actively undertake project risks, and achieve synergy effects of PPP projects. Through the cooperation of both parties, the total income of PPP projects is increased. The research results show that the government chooses social capital participants with complementary advantages to form synergy as shown by Jiang et al. (2016); with the increase of synergy, the government needs to increase the incentive intensity, improve the performance behavior of social capital participants as proposed by Junlong et al. (2020), curb their speculation, and promote the two sides. Due to the increased synergy and the willingness of social capital participants to increase cooperation and reduce speculation, the government should reduce the intensity of supervision and punishment.

Effect of debt tax benefits on corporate pension funding and risk-taking

2020 ◽  
Vol 47 (6) ◽  
pp. 1327-1337
Author(s):  
Kozo Omori ◽  
Tomoki Kitamura
Keyword(s):  
Risk Taking ◽  
Essential Feature ◽  
Pension Plan ◽  
Optimal Investment ◽  
Investment Risk ◽  
Defined Benefit ◽  
Content Type ◽  
Tax Benefits ◽  
The Impact ◽  
Funding Level

PurposeThis study theoretically investigates the impacts of tax benefits on funding level and risk-taking of a corporate defined benefit (DB) pension plan.Design/methodology/approachThe present value of the future tax benefits is maximized while the stockholders determine the funding level and investment risk-taking in DB plans. As a feature of DB plans, this study considers pension benefits to be pre-determined. Further, the pension beneficiary has a priority over the sponsor company's creditors for the pension reserve fund. These are seldom considered in previous studies.FindingsIt is desirable to decrease the funding level of DB plans to increase tax benefits. This is because the effect of tax exemption for the pension fund's investment income is eliminated by the change in the contribution arising from the investment's result. The optimal investment risk-taking depends on the funding level.Originality/valueThe impact of tax benefits on decision-making for DB plans is significantly different from that stated by previous studies, that is, an increase in pension funds will reduce the corporate debt. To explain corporate behavior, this study's results—derived from the essential feature of DB plans, which could not have been included in previous studies—should be considered.

scholarly journals Does External Shock Influence Farmer’s Adoption of Modern Irrigation Technology?—A Case of Gansu Province, China

Land ◽  
2021 ◽  
Vol 10 (8) ◽  
pp. 882
Author(s):  
Yongfeng Tan ◽  
Apurbo Sarkar ◽  
Airin Rahman ◽  
Lu Qian ◽  
Waqar Hussain Memon ◽  
...  
Keyword(s):  
Risk Taking ◽  
Risk Sharing ◽  
Negative Impact ◽  
Smallholder Farmers ◽  
Gansu Province ◽  
Mediating Effect ◽  
External Shocks ◽  
Economic Vulnerability ◽  
Irrigation Technology ◽  
The Impact

Due to the severe irrigational water scarcity and ever-growing contamination of existing water resources, the potential of improved and innovative irrigation technology has emerged. The risk-taking network may play an essential role in the adoption of modern irrigation technology (MIT). The main goals of the current study were to find the impacts of external shocks on MIT adoption by farmers. For doing so, the study analyzed the mediating effect of economic vulnerability (EV) and the moderating effect of the risk-taking network on farmer’s adaptation of MIT. Economic vulnerability of farmers refers to risks caused by external shocks to the farming system which may affect the farmer’s adoption of MIT. The empirical set-up of the study consists of micro survey data of 509 farmers from the Gansu Province of China. The results show that the external shock has a significant negative impact on adapting MIT by rural farmers. At the same time, EV plays an intermediary effect in increasing the impact of external irrigation on the adaptation of MIT. The intermediary to total effect is 36.57%. The risk-taking network has a moderate effect on the relationship between external shocks, affecting farmers to adopt MIT, while external shocks also increase EV which affects farmers’ adopting MIT. Thus, it can be said that the risk-taking network regulates the direct path of external shocks affecting farmers’ choice to adapt to MIT, and external shocks also affect farmer’s MIT adaptation. The public and private partnerships should be strengthened to facilitate risk minimization. Government should provide subsidies, and financial organizations should also formulate more accessible loans and risk-sharing facilities. The government should expand the support for formal and informal risk-taking network. They should also extend their support for formal and informal risk-taking networks to improve the risk response-ability of vulnerable farmers. The concerned authorities should attach smallholder farmers’ socio-economic structure and reform the existing policies according to their demands. The governmental authorities should also endorse the risk-sharing function of informal institutions.

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