Peer monitoring and its capacity to deal with negative effects of moral hazard: An explorative case study of the Stability Growth Pact

Peer monitoring and its capacity to deal with negative effects of moral hazard: An explorative case study of the Stability Growth Pact

van der Puil, J.T.

Van der Voort, H.G. (mentor)
Correljé, A.F. (mentor)
Ten Heuvelhof, E.F. (mentor)

Technology, Policy and Management

Policy, Organisation, Law and Gaming

System Engineering Policy Analysis and Management

2013-07-02

This report studies whether the peer monitoring arrangement in the Stability Growth Pact (SGP) can decrease negative effects of moral hazard. Theory argues that peer monitoring can reduce moral hazard issues, because peers have the same kind of knowledge and expertise. Peers are therefore less hampered by information asymmetry as apposed to a vertical regulator. Moreover, peers are argued to be willing to regulate one another, as they share risks. However, based on an institutional analysis and a case study, this research project shows that these assumptions are not true for the case of the SGP. Strategic behaviour of peers reduces the willingness and creates information asymmetry. As a result, the peer monitoring arrangement in the SGP has a limited ability to decrease the negative effects of moral hazard. To improve the effectiveness of this peer monitoring arrangement this reports argues to implement more checks and balances so that peers have less opportunity to replace regulatory procedures with political games.

moral hazard
peer monitoring
Stability Growth Pact
regulation
European sovereign debt crisis

http://resolver.tudelft.nl/uuid:0ab84990-6b84-4c71-8e19-1dd6e195ab01

Student theses

master thesis

(c) 2013 van der Puil, J.T.