How Leader’s Status Strategies Influence Accountability and Moral Hazard

Moral hazard, where a party engaging in risk is shielded from the potential downside of their actions, is claimed to be one of the primary reasons for the 2008 financial crisis. The leaders of these financial institutions were criticized and accused of lacking accountability. We unpack the relationship between leadership style, accountability preferences and tendency to engage in moral hazard behaviors. Using dominance and prestige as two viable strategies for attaining leadership positions, we seek to understand whether these strategies influence leaders’ different accountability preferences. We find individuals who implement dominant strategies prefer accountability that emphasizes the outcomes of ones’ decisions over the process (Study 2 & 3) and that dominant strategies are positively related to engaging in moral hazard (Study 1 & 3). We extend prior work on the coercive impact of power on moral hazard by further delineating the type of leaders prone to engage in moral hazard.