RISK TAKING, PRINCIPAL AGENT PROBLEMS AND BREAKDOWN OF CORPORATE SOCIAL RESPONSIBILITY (CSR): HOW TO REESTABLISH SAFE-ASSETS AND CAPITAL FUNDING FOR SOCIAL SECURITY?

Hans-Georg Petersen and Alexander Martin Wiegelmann
Additional contact information
Alexander Martin Wiegelmann: University of Potsdam, Germany

Equilibrium. Quarterly Journal of Economics and Economic Policy, 2013, vol. 8, issue 2, 7-30

Abstract: The breakdown of the financial markets in fall 2007 and the following debt crisis in the EU has produced an enormous mistrust in financial products and the monetary system. The paper describes the background of the crisis induced by functional failures in risk management and the multifold principal agent problems existing in the financial market structures. The innovated nontransparent financial products have mixed up different risk weights and puzzled, or even fooled formerly loyal customers. Contemporaneously abundant liquidity on the international financial market accompanied by easy money policies of the Fed in the US and the ECB in the euro zone have depressed the real interest rate to zero or even negative values. Desperate investors are seeking for safe-assets, but their demand remains unsatisfied. Low real interest rates and the consequently lacking compound interest effect in the same time jeopardize private as well as public insurance schemes being dependent on capital funding: the demographic crisis becomes gloomy. Therefore, the managers of the financial markets have to reestablish CSR and to divide the markets into safe-asset areas for the usual cli-ents and “casino” areas for those who like to play with high risks. Only with transparency and risk adequate financial products can the lost commitment be regained.

Keywords: Capital funding; corporate social responsibility; financial markets; principal agent problems; risk management (search for similar items in EconPapers)
JEL-codes: D23 G01 G32 M14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.12775/EQUIL.2013.009 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pes:ierequ:v:8:y:2013:i:2:p:7-30

Access Statistics for this article

Equilibrium. Quarterly Journal of Economics and Economic Policy is currently edited by Adam P. Balcerzak

More articles in Equilibrium. Quarterly Journal of Economics and Economic Policy from Institute of Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Adam P. Balcerzak ( this e-mail address is bad, please contact ).