01748cas a2200241 a 4500 AALejournalIMF017157 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475543254 1018-5941 BD-DhAAL BD-DhAAL Asai, Kentaro. Is Capping Executive Bonuses Useful? / Kentaro Asai. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (37 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper develops a theoretical framework to study the impact of bonus caps on banks' risk taking. In the model, labor market price adjustments can offset the direct effects of bonus caps. The calibrated model suggests that bonus caps are only effective when bank executives' mobility is restricted. It also suggests, irrespective of the degree of labor market mobility, bonus caps simultaneously reduce risk shifting by bank executives (too much risk taking because of limited liability), but aggravate underinvestment (bank executives foregoing risky but productive projects). Hence, the welfare effects of bonus caps critically depend on initial conditions, including the relative importance of risk shifting versus underinvestment. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2016/196 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/196/001.2016.issue-196-en.xml IMF e-Library