Ozdenoren, Emre; Yuan, Kathy - 2012
We propose a new theory of suboptimal risk-taking based on contractual externalities. We examine an industry with a … of their incentive provision on the average effort. During booms, they over-incentivise managers, triggering a rat …-race in effort exertion, resulting in excessive risk relative to the second-best. The opposite occurs during busts. -- Stock …