A neural marker of costly punishment behavior

Human readiness to incur personal costs to punish norm violators is a key force in the maintenance of social norms. The willingness to punish is, however, characterized by vast individual heterogeneity that is poorly understood. In fact, this heterogeneity has so far defied explanations in terms of individual-level demographic or psychological variables. Here, we use resting electroencephalography, a stable measure of individual differences in cortical activity, to show that a highly specific neural marker--baseline cortical activity in the right prefrontal cortex--predicts individuals' punishment behavior. The analysis of task-independent individual variation in cortical baseline activity provides a new window into the neurobiology of decision making by bringing dispositional neural markers to the forefront of the analysis.

The Taxation of Bonuses and its Effect on Executive Compensation - Evidence from the UK Experience

This paper explores the reaction of compensation components awarded to executive directors of UK financial institutions following the adoption of the bonus tax in December 2009. Excessive bonuses are blamed for encouraging risk taking and are regarded as one of the pull factors of the financial crisis. The British government attempted to reduce bonuses and accordingly corporate risk-taking by means of a special tax on cashbased bonuses. Using a comprehensive dataset on executive compensation we show that the introduction of the bonus tax decreased the net cash bonuses awarded to directors by about 43%, accompanied however by a simultaneous increase in other compensation components leaving both variable as well as total compensation unaffected. Hence, the incidence of the bonus tax was borne by the firms which compensated their managers for the decrease in cash-based compensation by awarding them different forms of pay. Consistent with this finding our data also suggests that firms reduced dividend pay-outs as a consequence of the bonus tax.