<p>You could augment an externality mechanism, where people are punished for the effect they have on other people, and use a convex function or variance of outcomes. You could also transform their payoffs with a concave function to induce risk aversion. Look into the VCG mechanism and extensions for more info. </p>

CC BY-SA 3.0
2016-08-18T15:58:12.007Z
2016-08-18T15:58:12.007Z
VCG
<p>It seems that there are some circumstances, say when the government foresees a financial crisis, where it would like firms to hedge, take less riesk etc. However, leveraged agents benefit from risk, and so they don;t benefit from risk eduction expenses. </p>

<p>Is there some theory or idea, out ther eon how to design a mechanism that incetivizes firms to reduce their riskiness? Maybe subsidize financial hedging? Maybe tax profits very progressively/convexly?</p>

<finance><fiscal-policy><risk>
Is there a good mechanism to incentivize leveraged firms to take less risks?
Fix.B.
# Is there a good mechanism to incentivize leveraged firms to take less risks?

(Asked by: username_0 on 2016-08-13)

It seems that there are some circumstances, say when the government foresees a financial crisis, where it would like firms to hedge, take less riesk etc. However, leveraged agents benefit from risk, and so they don;t benefit from risk eduction expenses.

Is there some theory or idea, out ther eon how to design a mechanism that incetivizes firms to reduce their riskiness? Maybe subsidize financial hedging? Maybe tax profits very progressively/convexly?

**Tags:** finance, fiscal-policy, risk

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## 1 answers

### Answer by username_1 on 2016-08-18. Score: 1 | Accepted answer

You could augment an externality mechanism, where people are punished for the effect they have on other people, and use a convex function or variance of outcomes. You could also transform their payoffs with a concave function to induce risk aversion. Look into the VCG mechanism and extensions for more info.


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