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The Economists' Voice 2.0The Financial Crisis, Health Care Reform, and More$
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Joseph Stiglitz and Aaron Edlin

Print publication date: 2014

Print ISBN-13: 9780231160155

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160155.001.0001

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Fixing Bankers’ Pay

Fixing Bankers’ Pay

Chapter:
(p.103) Chapter 13 Fixing Bankers’ Pay
Source:
The Economists' Voice 2.0
Author(s):

Lucian A. Bebchuk

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231160155.003.0013

In the wake of the financial crisis of 2008–2009, there are widespread concerns that the compensation structures of financial firms have provided excessive risk-taking incentives. This chapter looks into the normative case for regulation of pay in financial firms, the relationship between such regulation and the standard prudential regulation of finance, and what financial regulators should do in this area. It begins by describing two distinct sources of risk-taking incentives: the insulation of executives from long-term losses to shareholders and insulation from losses to capital suppliers other than shareholders. It then discusses changes in pay arrangements that would curtail incentives to take excessive risks in banks as well as in other firms. Next, it considers the question of what role, if any, the government should play in bringing about such changes.

Keywords:   banking regulation, financial regulation, compensation structure, bankers, pay regulation, risk-taking

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