Limited Liability and the Trade-off between Risk and Incentives
Abstracteveral empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse3_2007.
Date of creation: Apr 2007
Date of revision:
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limited liability; piece rates; risk aversion;
Other versions of this item:
- Kräkel, Matthias, 2007. "Limited Liability and the Trade-off between Risk and Incentives," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 201, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- M5 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-02 (All new papers)
- NEP-BEC-2007-06-02 (Business Economics)
- NEP-UPT-2007-06-02 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wright, Donald J., 2002.
"The Risk and Incentives Trade-off in the Presence of Heterogeneous Man agers,"
2, University of Sydney, School of Economics.
- Donald J. Wright, 2004. "The Risk and Incentives Trade-off in the Presence of Heterogeneous Managers," Journal of Economics, Springer, vol. 83(3), pages 209-223, December.
- Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
- Hadar, Josef & Russell, William R., 1971. "Stochastic dominance and diversification," Journal of Economic Theory, Elsevier, vol. 3(3), pages 288-305, September.
- Serfes, Konstantinos, 2005. "Risk sharing vs. incentives: Contract design under two-sided heterogeneity," Economics Letters, Elsevier, vol. 88(3), pages 343-349, September.
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