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The negative trade-off between risk and incentives: Evidence from the american whaling industry

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  • Hilt, Eric

Abstract

This paper analyzes the trade-off between risk and incentives in the share contracts of the American whaling industry. Using a newly collected panel of 5378 individuals who sailed on more than 1000 whaling voyages from 1855-68, the response of sailors' compensation to an increase in risk is estimated. The risks used to identify this response resulted from the commerce-raiding naval vessels of the Confederacy during the Civil War. As the Confederate cruisers sailed primarily in the Atlantic, and therefore posed far less of a threat to whaling voyages to other oceans, a quasi-experimental approach focusing on the differences between Atlantic voyages compared to others is implemented. The results are consistent with a negative trade-off between risk and incentives in the industry's contracts. Moreover, evidence is found of selection among less risk-averse sailors and merchants into riskier voyages during the war.

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Bibliographic Info

Article provided by Elsevier in its journal Explorations in Economic History.

Volume (Year): 45 (2008)
Issue (Month): 4 (September)
Pages: 424-444

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Handle: RePEc:eee:exehis:v:45:y:2008:i:4:p:424-444

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Web page: http://www.elsevier.com/locate/inca/622830

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Keywords: Risk Incentives Whaling Compensation Civil war Moral hazard;

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References

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  1. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
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  7. Hilt, Eric, 2007. "Investment and Diversification in the American Whaling Industry," The Journal of Economic History, Cambridge University Press, vol. 67(02), pages 292-314, June.
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  14. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc.
  15. Allen, Douglas W., 2002. "The British Navy Rules: Monitoring and Incompatible Incentives in the Age of Fighting Sail," Explorations in Economic History, Elsevier, vol. 39(2), pages 204-231, April.
  16. Ran Abramitzky, 2008. "The Limits of Equality: Insights from the Israeli Kibbutz," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 1111-1159, August.
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Cited by:
  1. Grund, Christian & Sliwka, Dirk, 2006. "Performance Pay and Risk Aversion," IZA Discussion Papers 2012, Institute for the Study of Labor (IZA).
  2. Matthias Kräkel & Anja Schöttner, 2014. "Optimal Sales Force Compensation," Working Paper Series of the Department of Economics, University of Konstanz 2014-09, Department of Economics, University of Konstanz.

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