Explicit economic incentives – for example, a subsidy to contribute to a public good – can sometimes ‘crowd out’ generous and ethical motives. But when properly designed, can incentives ‘crowd in’ these civic virtues? This column uses an example from ancient Athens to show how this might be done, providing a lesson for modern mechanism design and public policy.
Samuel Bowles, 26 May 2016
Jakob de Haan, Wijnand Nuijts, Mirea Raaijmakers, 06 November 2015
The Global Crisis revealed serious deficiencies in the supervision of financial institutions. In particular, regulators neglected organisational culture at the institutional level. This column reviews efforts since 2011 by De Nederlandsche Bank to oversee executive behaviour and cultures at financial institutions. These measures aimed at identifying risky behaviour and decision-making processes at a sufficiently early stage for appropriate countermeasures to be implemented. The findings show that regulators can play a larger part in securing the stability of the financial system by taking an active role in shaping institutional cultural processes.
Peter Koudijs, Joachim Voth, 12 April 2014
Human behaviour in times of financial crises is difficult to understand, but critical to policymaking. This column discusses new evidence showing that personal experience in financial markets can dramatically change risk tolerance. A cleanly identified historical episode demonstrates that even without losses, negative shocks not only modify risk appetite, but can also create ‘leverage cycles’. These, in turn, have the potential to make markets extremely fragile. Remarkably, those who witnessed this episode but were not directly threatened by it, did not change their own behaviour. Thus, personal experience can be a powerful determinant of investors’ actions and can eventually affect aggregate instability.
James Andreoni, Laura Gee, 14 June 2011
How should a small organisation – a firm, a university, a sports team – encourage good behaviour? While punishment can often make things worse, this column proposes and tests a method the authors call the “hired gun”. By punishing only the worst offender, everyone is given an incentive to be the second-worst offender. If everyone follows that strategy, good behaviour soon follows.
Shannon Mudd, Konstantin Pashev, Neven Valev, 02 January 2011
The systemic and macroeconomic issues associated with a banking crisis are much in the news. This column focuses on the impact on individuals, particularly those who experienced losses, and presents evidence of effects on their expectations and behaviour lasting a decade or more.
Paola Sapienza, Ernesto Reuben, Luigi Zingales, 28 January 2008
Are impatient people also likely to procrastinate? While these two behavioural characteristics are often said to be linked, the authors of CEPR DP6668 use lab, field and survey evidence to test this link empirically and discover that it does exist.