Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model
AbstractRisk-neutral individuals take more risky decisions when they have limited liability.ï¿½ Risk-neutral managers may not when acting as agents under contract and taking costly actions to acquire informatin before taking decisions.ï¿½ Limited liability makes it optimal to increase the reward for outcomes relatively more likely to arise from desirable than from undesirable actions.ï¿½ The resulting decisions may be less, rather than more, risky.ï¿½ Making a decision after acquiring information provides an additional reason to those in the classic principal-agent literature for using contracts with pay increasing in the return.ï¿½ Further results on the form of contracts are also derived.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 20 (2011)
Issue (Month): 1 (03)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- James Malcomson, 2009. "Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model," Economics Series Working Papers 453, University of Oxford, Department of Economics.
- James Malcomson, 2010. "Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model," CESifo Working Paper Series 2943, CESifo Group Munich.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
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