Moral Hazard in Risk-Averse Teams
AbstractHolmstrom (1982) has shown that a non-budget-balancing contract induces a team of risk-neutral agents to choose the first-best effort levels. This is not generally true when agents are risk averse. Furthermore, a "massacre" contract, which punishes all but one agent when the outcome is low, can attain the first best over a wider range of parameters than any other budget-balancing contract.
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Volume (Year): 18 (1987)
Issue (Month): 3 (Autumn)
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