Rethinking moral hazard: government protection and bank risk-taking

Why do firms take excessive risks that result in failure? Moral hazard theorists argue the answer lies risk-boosting effects of government safety net, which insulates from market discipline. We revisit this conventional wisdom by examining how exposure to protection has contributed recent trends bank risk-taking USA. Drawing insights economic sociology, we highlight an additional way can shape organizational behavior: reducing resource-based profitability pressures spur risky behavior. Using panel data analysis US behavior between 1994 and 2015, find was more often associated with less than it. This pattern contradicts predictions moral theory but aligns our own institutional-resource theory. discuss implications for sociology financial economics.