Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse
Unsustainable accumulation of debt precedes financial crises. The recent Western financial crisis was no exception in this regard. The external debt of Greece, Iceland, Ireland, and Spain increased exponentially, in Iceland at a rate higher than the rate of interest on foreign debt. The Ponzi scheme...
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Munich: Center for Economic Studies and ifo Institute (CESifo)
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ftzbwkiel:oai:econstor.eu:10419/207265 2024-01-14T10:07:47+01:00 Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse Gylfason, Thorvaldur Zoega, Gylfi 2019 http://hdl.handle.net/10419/207265 eng eng Munich: Center for Economic Studies and ifo Institute (CESifo) Series: CESifo Working Paper No. 7874 gbv-ppn:1679160613 http://hdl.handle.net/10419/207265 RePec:ces:ceswps:_7874 http://www.econstor.eu/dspace/Nutzungsbedingungen ddc:330 E44 G01 G41 financial crises corruption culture Iceland quality of governance rent seeking doc-type:workingPaper 2019 ftzbwkiel 2023-12-18T00:41:27Z Unsustainable accumulation of debt precedes financial crises. The recent Western financial crisis was no exception in this regard. The external debt of Greece, Iceland, Ireland, and Spain increased exponentially, in Iceland at a rate higher than the rate of interest on foreign debt. The Ponzi scheme that played out in Iceland begs the question why a country would set out on a path that could lead to a financial crisis. We address this question and describe the private incentives faced by bankers, financiers, politicians and others. In particular, we show how private incentives and a culture that valued financial gains above all else collided with socially desirable outcomes. The root of the problem in Iceland as well as in other crisis countries was a failure at the state level to align private incentives with what was socially prudent, a failure due, at least in Iceland, to a combination of mistakes, incompetence and what can only be called corruption. Furthermore, misplaced belief in a market economy where morals and ethics play no role paved the way to serious lapses in accounting and in the operation of the banks. Report Iceland EconStor (German National Library of Economics, ZBW) |
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EconStor (German National Library of Economics, ZBW) |
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English |
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ddc:330 E44 G01 G41 financial crises corruption culture Iceland quality of governance rent seeking |
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ddc:330 E44 G01 G41 financial crises corruption culture Iceland quality of governance rent seeking Gylfason, Thorvaldur Zoega, Gylfi Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse |
topic_facet |
ddc:330 E44 G01 G41 financial crises corruption culture Iceland quality of governance rent seeking |
description |
Unsustainable accumulation of debt precedes financial crises. The recent Western financial crisis was no exception in this regard. The external debt of Greece, Iceland, Ireland, and Spain increased exponentially, in Iceland at a rate higher than the rate of interest on foreign debt. The Ponzi scheme that played out in Iceland begs the question why a country would set out on a path that could lead to a financial crisis. We address this question and describe the private incentives faced by bankers, financiers, politicians and others. In particular, we show how private incentives and a culture that valued financial gains above all else collided with socially desirable outcomes. The root of the problem in Iceland as well as in other crisis countries was a failure at the state level to align private incentives with what was socially prudent, a failure due, at least in Iceland, to a combination of mistakes, incompetence and what can only be called corruption. Furthermore, misplaced belief in a market economy where morals and ethics play no role paved the way to serious lapses in accounting and in the operation of the banks. |
format |
Report |
author |
Gylfason, Thorvaldur Zoega, Gylfi |
author_facet |
Gylfason, Thorvaldur Zoega, Gylfi |
author_sort |
Gylfason, Thorvaldur |
title |
Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse |
title_short |
Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse |
title_full |
Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse |
title_fullStr |
Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse |
title_full_unstemmed |
Individual Behavior and Collective Action: The Path to Iceland's Financial Collapse |
title_sort |
individual behavior and collective action: the path to iceland's financial collapse |
publisher |
Munich: Center for Economic Studies and ifo Institute (CESifo) |
publishDate |
2019 |
url |
http://hdl.handle.net/10419/207265 |
genre |
Iceland |
genre_facet |
Iceland |
op_relation |
Series: CESifo Working Paper No. 7874 gbv-ppn:1679160613 http://hdl.handle.net/10419/207265 RePec:ces:ceswps:_7874 |
op_rights |
http://www.econstor.eu/dspace/Nutzungsbedingungen |
_version_ |
1788062193524146176 |