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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
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.:
- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Rajesh K. Aggarwal & Andrew A. Samwick, 1999.
"The Other Side of the Trade-off: The Impact of Risk on Executive Compensation,"
Journal of Political Economy,
University of Chicago Press, vol. 107(1), pages 65-105, February.
- Rajesh Aggarwal & Andrew A. Samwick, 1998. "The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation," NBER Working Papers 6634, National Bureau of Economic Research, Inc.
- Sanford Grossman & Oliver Hart, .
"An Analysis of the Principal-Agent Problem,"
Rodney L. White Center for Financial Research Working Papers
15-80, Wharton School Rodney L. White Center for Financial Research.
- Holmstrom, Bengt & Milgrom, Paul, 1987.
"Aggregation and Linearity in the Provision of Intertemporal Incentives,"
Econometric Society, vol. 55(2), pages 303-28, March.
- Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
- Garen, John E, 1994. "Executive Compensation and Principal-Agent Theory," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1175-99, December.
- Thomas Cornelißen & John S. Heywood & Uwe Jirjahn, 2008.
"Performance Pay, Risk Attitudes and Job Satisfaction,"
SOEPpapers on Multidisciplinary Panel Data Research
136, DIW Berlin, The German Socio-Economic Panel (SOEP).
- 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.
- Li, Fei & Ueda, Masako, 2009. "Why do reputable agents work for safer firms?," Finance Research Letters, Elsevier, vol. 6(1), pages 2-12, March.
- Patrick Legros & Andrew F. Newman, 2007.
"Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities,"
Econometric Society, vol. 75(4), pages 1073-1102, 07.
- Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers 0030, Institute for Advanced Study, School of Social Science.
- Patrick Legros & Andrew F. Newman, 2002. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-149, Boston University - Department of Economics, revised Nov 2004.
- 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.
- Matthias Kräkel, 2007. "Limited Liability and the Trade-off between Risk and Incentives," Bonn Econ Discussion Papers bgse3_2007, University of Bonn, Germany.
- Papa, Gianluca & Speciale, Biagio, 2011. "Financial leverage and managerial compensation: Evidence from the UK," Research in Economics, Elsevier, vol. 65(1), pages 36-46, March.
- Patrick Legros & Andrew Newman, 2007. "Beauty is a beast, frog is a prince: assortative matching in a nontransferable world," ULB Institutional Repository 2013/7022, ULB -- Universite Libre de Bruxelles.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vanessa Holcombe).
If references are entirely missing, you can add them using this form.