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

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dc.contributor.authorCole, Shawn
dc.contributor.authorKanz, Martin
dc.contributor.authorKlapper, Leora
dc.date.accessioned2012-12-21T19:45:12Z
dc.date.available2012-12-21T19:45:12Z
dc.date.issued2012-07
dc.description.abstractThis paper uses a series of experiments with commercial bank loan officers to test the effect of performance incentives on risk-assessment and lending decisions. The paper first shows 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 loan officers. Second, the paper presents 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.en
dc.identifierhttp://documents.worldbank.org/curated/en/2012/07/16531326/incentivizing-calculated-risk-taking-evidence-experiment-commercial-bank-loan-officers
dc.identifier.doi10.1596/1813-9450-6146
dc.identifier.urihttps://hdl.handle.net/10986/12002
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research working paper ; no. 6146
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectACCOUNTABILITY
dc.subjectAGENCY PROBLEM
dc.subjectAGENCY PROBLEMS
dc.subjectAPPROVAL PROCESS
dc.subjectASSET PRICES
dc.subjectASSET QUALITY
dc.subjectBALANCE SHEET
dc.subjectBANK CREDIT
dc.subjectBANK LENDING
dc.subjectBANK LOAN OFFICERS
dc.subjectBANK POLICY
dc.subjectBORROWER
dc.subjectBRANCH
dc.subjectBUSINESS EXPERIENCE
dc.subjectBUSINESS OWNERS
dc.subjectBUSINESS RISK
dc.subjectCAPITAL ALLOCATION
dc.subjectCAPITAL LOANS
dc.subjectCASE OF DEFAULT
dc.subjectCASH PAYMENTS
dc.subjectCHECKS
dc.subjectCLAIMANT
dc.subjectCOLLATERAL
dc.subjectCOMMERCIAL BANK
dc.subjectCOMMERCIAL BANK LOAN
dc.subjectCOMMERCIAL BANKS
dc.subjectCOMMERCIAL LENDER
dc.subjectCOMMERCIAL LENDING
dc.subjectCOMMERCIAL LOAN
dc.subjectCOMMERCIAL PAPER
dc.subjectCONFLICT OF INTEREST
dc.subjectCONSUMER LENDING
dc.subjectCORPORATE FINANCE
dc.subjectCOST OF CAPITAL
dc.subjectCREDIT APPLICATION
dc.subjectCREDIT APPLICATIONS
dc.subjectCREDIT AVAILABILITY
dc.subjectCREDIT BUREAU
dc.subjectCREDIT INFORMATION
dc.subjectCREDIT MARKETS
dc.subjectCREDIT OFFICER
dc.subjectCREDIT OFFICERS
dc.subjectCREDIT QUALITY
dc.subjectCREDIT REPORTS
dc.subjectCREDIT RISK
dc.subjectCREDIT SCORE
dc.subjectCREDIT SCORING
dc.subjectCREDIT SCORING MODELS
dc.subjectCREDIT-SCORING
dc.subjectDEBT
dc.subjectDEBT CONTRACTS
dc.subjectDEBT SERVICE
dc.subjectDECENTRALIZATION
dc.subjectDEFAULT RATES
dc.subjectDEFAULT RISK
dc.subjectDEFAULTS
dc.subjectDEFERRED PAYMENT
dc.subjectDEMOGRAPHIC CHARACTERISTIC
dc.subjectDEMOGRAPHIC CHARACTERISTICS
dc.subjectDEPOSIT
dc.subjectDEPOSIT INSURANCE
dc.subjectDISCOUNT RATE
dc.subjectDISCOUNT RATES
dc.subjectDISPOSITIONS
dc.subjectDUMMY VARIABLE
dc.subjectEMERGING CREDIT
dc.subjectEMERGING MARKETS
dc.subjectEMPLOYEE
dc.subjectEMPLOYERS
dc.subjectENFORCEABILITY
dc.subjectENFORCEABILITY OF DEBT CONTRACTS
dc.subjectENTREPRENEUR
dc.subjectENTREPRENEURIAL ACTIVITIES
dc.subjectENTREPRENEURS
dc.subjectENTREPRENEURSHIP
dc.subjectEQUALITY
dc.subjectEQUALITY OF DISTRIBUTIONS
dc.subjectEXCLUSION
dc.subjectEXPENDITURE
dc.subjectEXPENDITURES
dc.subjectFEDERAL RESERVE
dc.subjectFEDERAL RESERVE BANK
dc.subjectFEDERAL RESERVE BANK OF NEW YORK
dc.subjectFINANCIAL ASSISTANCE
dc.subjectFINANCIAL CRISIS
dc.subjectFINANCIAL DEVELOPMENT
dc.subjectFINANCIAL INNOVATION
dc.subjectFINANCIAL INSTITUTION
dc.subjectFINANCIAL INSTITUTIONS
dc.subjectFINANCIAL INTERMEDIATION
dc.subjectFINANCIAL MARKETS
dc.subjectFINANCIAL PRODUCTS
dc.subjectFINANCIAL RISK
dc.subjectFINANCIAL STUDIES
dc.subjectFIRMS
dc.subjectFIXED COST
dc.subjectFOREIGN LENDERS
dc.subjectFORMAL BORROWING
dc.subjectFORMAL FINANCIAL MARKETS
dc.subjectFUTURE ASSET
dc.subjectGENDER
dc.subjectGOVERNMENT OWNERSHIP
dc.subjectHOUSEHOLD INCOME
dc.subjectIMPLICIT GUARANTEES
dc.subjectINCENTIVE COMPATIBILITY CONSTRAINT
dc.subjectINCENTIVE CONSTRAINTS
dc.subjectINCENTIVES FOR REPAYMENT
dc.subjectINCOME STATEMENT
dc.subjectINCOME STATEMENTS
dc.subjectINDIVIDUAL LOAN
dc.subjectINEQUALITY
dc.subjectINFORMATION ASYMMETRIES
dc.subjectINSTALLMENT
dc.subjectINSTALLMENTS
dc.subjectINSURANCE
dc.subjectINTEREST RATE
dc.subjectINTEREST RATES
dc.subjectINTERNATIONAL BANK
dc.subjectINVENTORY
dc.subjectJUDGMENT
dc.subjectLENDER
dc.subjectLENDING DECISION
dc.subjectLENDING DECISIONS
dc.subjectLEVELS OF DEBT
dc.subjectLIMITED LIABILITY
dc.subjectLINES OF CREDIT
dc.subjectLOAN APPLICATION
dc.subjectLOAN APPLICATIONS
dc.subjectLOAN APPROVAL
dc.subjectLOAN APPROVALS
dc.subjectLOAN CHARACTERISTICS
dc.subjectLOAN CLIENTS
dc.subjectLOAN DEFAULTS
dc.subjectLOAN OFFICER
dc.subjectLOAN OFFICERS
dc.subjectLOAN PERFORMANCE
dc.subjectLOAN PORTFOLIO
dc.subjectLOAN QUALITY
dc.subjectLOAN REPAYMENT
dc.subjectLOAN SIZE
dc.subjectLOAN UNDERWRITING
dc.subjectMEDIUM ENTERPRISES
dc.subjectMORAL HAZARD
dc.subjectNEGOTIATION
dc.subjectNET INTEREST MARGIN
dc.subjectNET PROFIT
dc.subjectNON-PERFORMING LOAN
dc.subjectNON-PERFORMING LOANS
dc.subjectOPAQUE SMALL BUSINESSES
dc.subjectOPTIMAL CONTRACT
dc.subjectOUTSTANDING LOANS
dc.subjectPAYOFFS
dc.subjectPENALTIES
dc.subjectPENALTY
dc.subjectPERSONAL EXPENSES
dc.subjectPOLITICAL ECONOMY
dc.subjectPREDICTIVE CREDIT SCORING
dc.subjectPRESENT VALUE
dc.subjectPRIVATE SECTOR BANKS
dc.subjectPROBABILITY OF DEFAULT
dc.subjectPRODUCTIVITY
dc.subjectPROFITABILITY
dc.subjectPROFITS PER LOAN
dc.subjectPUBLIC SECTOR BANK
dc.subjectPUBLIC SECTOR COMMERCIAL BANKS
dc.subjectREMEDY
dc.subjectREPAYMENT
dc.subjectREPAYMENT HISTORY
dc.subjectREPAYMENTS
dc.subjectRESIDUAL CLAIMANT
dc.subjectRETURN
dc.subjectRETURNS
dc.subjectRISK AVERSION
dc.subjectRISK EVALUATION
dc.subjectRISK MANAGEMENT
dc.subjectRISK TAKING
dc.subjectROLE OF BANK
dc.subjectSALARY
dc.subjectSHAREHOLDERS
dc.subjectSMALL BUSINESS
dc.subjectSMALL BUSINESS CREDIT
dc.subjectSMALL BUSINESS LENDING
dc.subjectSMALL BUSINESS LOAN
dc.subjectSMALL BUSINESS LOANS
dc.subjectSMALL FIRM
dc.subjectSMALL FIRM FINANCE
dc.subjectSMALL-BUSINESS
dc.subjectSMALL-BUSINESS LOANS
dc.subjectSTART-UP
dc.subjectSTATE BANKS
dc.subjectTAX
dc.subjectUNDERLYING ASSET
dc.subjectVALUATIONS
dc.subjectWAGES
dc.subjectWILLINGNESS TO PAY
dc.subjectWORKING CAPITAL
dc.titleIncentivizing Calculated Risk-Taking : Evidence from an Experiment with Commercial Bank Loan Officersen
dspace.entity.typePublication
okr.crossref.titleIncentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers
okr.date.disclosure2012-07-01
okr.date.doiregistration2025-04-10T10:39:34.127494Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2012/07/16531326/incentivizing-calculated-risk-taking-evidence-experiment-commercial-bank-loan-officers
okr.globalpracticeFinance and Markets
okr.guid928111468323695558
okr.identifier.doi10.1596/1813-9450-6146
okr.identifier.externaldocumentum000158349_20120723162644
okr.identifier.internaldocumentum16531326
okr.identifier.reportWPS6146
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/07/23/000158349_20120723162644/Rendered/PDF/WPS6146.pdfen
okr.topicFinance and Financial Sector Development::Microfinance
okr.topicFinance and Financial Sector Development::Debt Markets
okr.topicBanks and Banking Reform
okr.topicFinance and Financial Sector Development::Access to Finance
okr.topicFinance and Financial Sector Development::Bankruptcy and Resolution of Financial Distress
okr.unitDevelopment Research Group (DECRG)
okr.volume1 of 1
relation.isAuthorOfPublicatione0a9502f-8574-53b5-bf27-732f5a6026e2
relation.isAuthorOfPublication.latestForDiscoverye0a9502f-8574-53b5-bf27-732f5a6026e2
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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