This paper applies the literature on managerial contracts to a particular aspect of the internal organization of the bank: the setting of the price at which to trade internal funds. If there is separation of ownership and control, the internal price of funds is a crucial variable for designing optimal incentive schemes. It is shown that, when there is competition for loans, it is optimal, from the owner point of view, to set the internal transfer price of funds at a different level from the interbank market rate so that the manager will behave more aggressively.
Cerasi, V. (1996). The Determination of the Internal Price of Funds and the Internal Organization of the Bank. ECONOMIC NOTES, 25(3), 483-498.
The Determination of the Internal Price of Funds and the Internal Organization of the Bank
CERASI, VITTORIA
1996
Abstract
This paper applies the literature on managerial contracts to a particular aspect of the internal organization of the bank: the setting of the price at which to trade internal funds. If there is separation of ownership and control, the internal price of funds is a crucial variable for designing optimal incentive schemes. It is shown that, when there is competition for loans, it is optimal, from the owner point of view, to set the internal transfer price of funds at a different level from the interbank market rate so that the manager will behave more aggressively.
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
