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Evidence on performance pay and risk aversion

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  • Grund, Christian
  • Sliwka, Dirk

Abstract

Making use of a unique representative data set, we find clear evidence that risk aversion has a highly significant and substantial negative impact on the probability that an employee's pay is performance contingent, which confirms the well known risk-incentive trade-off.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 106 (2010)
Issue (Month): 1 (January)
Pages: 8-11

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Handle: RePEc:eee:ecolet:v:106:y:2010:i:1:p:8-11

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Agency theory Incentives Pay for performance Risk Risk aversion;

References

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  1. Allen, Douglas W & Lueck, Dean, 1995. "Risk Preferences and the Economics of Contracts," American Economic Review, American Economic Association, vol. 85(2), pages 447-51, May.
  2. Dohmen, Thomas J & Falk, Armin & Huffman, David & Schupp, Jürgen & Sunde, Uwe & Wagner, Gert Georg, 2006. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," CEPR Discussion Papers 5517, C.E.P.R. Discussion Papers.
  3. Ferrall, Christopher & Shearer, Bruce, 1999. "Incentives and Transactions Costs within the Firm: Estimating an Agency Model Using Payroll Records," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 309-38, April.
  4. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
  5. Daniel A. Ackerberg & Maristella Botticini, 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Papers 0096, Boston University - Industry Studies Programme.
  6. Laffont, Jean-Jacques & Matoussi, Mohamed Salah., 1988. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," Working Papers 667, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Martin Gaynor & Paul Gertler, 1995. "Moral Hazard and Risk Spreading in Partnerships," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 591-613, Winter.
  8. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
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Citations

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Cited by:
  1. Thomas Cornelissen & John S. Heywood & Uwe Jirjahn, 2010. "Profit Sharing and Reciprocity: Theory and Survey Evidence," Research Papers in Economics 2010-04, University of Trier, Department of Economics.
  2. Robert Dur & Arjan Non & Hein Roelfsema, 2008. "Reciprocity and Incentive Pay in the Workplace," Tinbergen Institute Discussion Papers 08-080/1, Tinbergen Institute.
  3. Sabrina Teyssier, 2009. "Inequity and Risk Aversion in Sequential Public Good Games," Working Papers 0919, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  4. Gürtler, Marc & Gürtler, Oliver, 2013. "The optimality of heterogeneous tournaments," Working Papers IF42V1, Technische Universität Braunschweig, Institute of Finance.
  5. Engesaeth, E.J.P., 2011. "Managerial compensation contracting," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4807459, Tilburg University.
  6. Cornelissen, Thomas & Heywood, John S. & Jirjahn, Uwe, 2011. "Performance pay, risk attitudes and job satisfaction," Labour Economics, Elsevier, vol. 18(2), pages 229-239, April.
  7. Frick, Bernd, 2011. "Gender differences in competitiveness: Empirical evidence from professional distance running," Labour Economics, Elsevier, vol. 18(3), pages 389-398, June.
  8. Marco A. Marini & Paolo Polidori & Desiree Teobaldelli & Davide Ticchi, 2014. "Optimal Incentives in a Principal-Agent Model with Endogenous Technology," DIAG Technical Reports 2014-01, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
  9. Rayton, Bruce A. & Brammer, Stephen & Cheng, Suwina, 2012. "Corporate visibility and executive pay," Economics Letters, Elsevier, vol. 117(1), pages 337-339.

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