Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers

DSpace/Manakin Repository

Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers

Citable link to this page

. . . . . .

Title: Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers
Author: Cole, Shawn; Kanz, Martin; Klapper, Leora

Note: Order does not necessarily reflect citation order of authors.

Citation: Cole, Shawn, Martin Kanz, and Leora Klapper. "Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers." Harvard Business School Working Paper, No. 13-002, July 2012.
Full Text & Related Files:
Abstract: This paper uses a series of experiments with commercial bank loan officers to test the effect of performance incentives on risk-assessment and lending decisions. We first show that, while high-powered incentives lead to greater screening effort and more profitable lending, their power is muted by both deferred compensation and the limited liability typically enjoyed by credit officers. Second, we present direct evidence that incentive contracts distort judgment and beliefs, even among trained professionals with many years of experience. Loans evaluated under more permissive incentive schemes are rated significantly less risky than the same loans evaluated under pay-for-performance.
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:9369407

Show full Dublin Core record

This item appears in the following Collection(s)

 
 

Search DASH


Advanced Search
 
 

Submitters