In multiple-task hidden-action models, the (mis-)allocation of effort may play an important role for benefit creation. Signals which capture this benefit and which are used in incentive schemes should thus not only be judged by the noise and the associated costs but also by the mis-allocation...

The Benefit and Cost of Winner Picking: Redistribution Vs Incentives

Within the Internal Ratings-Based (IRB) approach of Basel II it is assumed that idiosyncratic risk has been fully diversi?ed away. The impact of undiversi?ed idiosyncratic risk on portfolio Value-at-Risk can be quanti?ed via a granularity adjustment (GA). We provide an analytic formula for the...

We show that the saddle-point approximation method to quantify the impact of undiversi?ed idiosyncratic risk in a credit portfolio is inappropriate in the presence of double default effects. Speci?cally, we prove that there does not exist an equivalent formula to the granularity adjustment, that...

In 2005 the Internal Ratings Based (IRB) approach of `Basel II' was enhanced by a `treatment of double default effects' to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several severe problems of this approach and presents a...

This note points out the differences between conducting several projects within one big firm (common ownership) and conducting each project within an independent firm (separate ownership).

In 2005 the Internal Ratings Based (IRB) approach of `Basel II' was enhanced by a `treatment of double default effects' to account for credit risk mitigation techniques such as ordinary guarantees or credit derivatives. This paper reveals several severe problems of this approach and presents a...

The Benefit and Cost of Winner Picking: Redistribution Vs Incentives |AB| A multi-divisional firm can engage in "winner-picking" to redistribute scarce funds efficiently across divisions. But there is a conflict between rewarding winners (investing) and producing resources internally to reward...

This note points out the differences between conducting several projects within one big firm (common ownership) and conducting each project within an independent firm (separate ownership).