D01 - Microeconomic Behavior: Underlying PrinciplesReturn

This paper examines the validity of the risk-return trade-off for a sample of Czech banks over the period 2002-2022 by analysing the relationship between the bank risk and risk-adjusted returns. I find evidence of a significant negative association between the regulatory risk measure and risk-adjusted returns, indicating that the risk-return trade-off does not hold. Specifically, a 100 bps increase in the risk is associated with about a 7 bps decrease in the return on risk-adjusted assets (RORWA) and an 11 bps decrease in the risk-adjusted net interest margin (rNIM) in the short run. The long-run effect is about double for RORWA and almost triple for rNIM. I also find evidence that during the period of low interest rates, the effect for RORWA was about a half smaller, albeit still negative. On the contrary, when non-regulatory measures of risk or risk-adjusted profitability are used, the risk-return trade-off seems to hold.

The model of Homo economicus has often been criticized as unrealistic. In particular, it has been found lacking for allegedly assuming that people are selish, an assumption which is contradicted by both introspection and empirical evidence. The aim of this paper is to show that never in the history of the economic discipline has selishness constituted the core of the Homo economicus model. In fact, the standard economic model of behaviour which has been used by economists for more than a hundred years is reticent about the motives of behaviour. Critics thus do not criticize Homo economicus but a straw man - Homo stramineus. Three possible reasons for confusing Homo economicus with Homo stramineus are identiied: malicious intent, ignorance and an attempt to avoid the tautological model of behaviour.

Economic theories of the last decades provide analytical framework within which we can explain institutional conditions for corrupt action. Specialists making economic policy recommendations to resolve this problem use several approaches, the most dominant of which are rent seeking and agency theories. In this paper, I explain economic policy recommendations that stem out of both approaches. I argue that scholars suggesting these recommendations within these two frameworks do not understand each other because of different assumptions they make. More specifically, I show that two sets of policy recommendations presented here are based on the particular system of property rights assumed within each theory. In this example, I show why corruption is a problem of the state rather than the market.