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Regulation incentives for risk management in incomplete markets

Jorgensen, Bjorn N. and Danielsson, Jon and de Vries, Casper G. (2004) Regulation incentives for risk management in incomplete markets. In: Giorgio, Szego, (ed.) New Risk Measures in Investment and Regulation. Wiley Finance Series. John Wiley & Sons, Chichester, UK, pp. 13-31. ISBN 9780470861547

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Abstract

Implicit government guarantees induce moral hazard. The potential for moral hazard under the new Basel Capital Accord is explored with three different incomplete markets models. First, where investment decisions are affected by direct risk regulation causing more risky investments to be selected. Second, how risk regulation restricts banks’ alternative (off–equilibrium) project selection. Third, principal–agent relationships between a bank’s board and its risk manager. In all three cases the government intervention has the potential to increase unintended risk levels due to market incompleteness.

Item Type: Book Section
Official URL: http://eu.wiley.com/WileyCDA/WileyTitle/productCd-...
Additional Information: © 2004 John Wiley & Sons
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Sets: Departments > Accounting
Date Deposited: 05 Aug 2013 15:19
Last Modified: 02 Sep 2013 08:56
URI: http://eprints.lse.ac.uk/id/eprint/51428

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