Using a simple symmetric principal-agent model with two banks, we study the effects of both bailouts and bonus taxes on risk taking and managerial compensation. We assume financial institutions to be systemic only on a collective basis, implying support with bailouts only if they both fail...

Using a principal-agent model with two-periods, we analyze the effects of both bailouts and bonus taxation on managerial compensation and short-termism. In our model, short-termism increases expected short-term profits at the expense of expected long-term profits and is harmful not only for...