The Risk and Incentives Trade-off in the Presence of Heterogeneous Man agers
AbstractAgency theory predicts a negative relationship between risk and incentives, yet recent empirical evidence has not consistently found such a relationship. In fact, some researchers have found a positive relationship. By introducing competition for heterogeneous managers, who differ in their degrees of risk aversion, into a standard agency model, this paper demonstrates that a negative or positive relationship is theoretically possible. Which arises depends on the relative risk aversion parameters of the managers and the absolute and relative riskiness of the environments.
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Bibliographic InfoPaper provided by University of Sydney, School of Economics in its series Working Papers with number 2.
Date of creation: Apr 2002
Date of revision:
Other versions of this item:
- 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.
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
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