Risk Attitudes and the Shift of Liability from the Principal to the Agent
AbstractThis paper studies the problem of illegal behavior within a principal-agent framework. The agent performs an illegal activity which benefits the principal, and can exert an effort that negatively affects the likelihood of detection of the violation.Two opposite legal regimes are considered: in the first, only the risk neutral principal is strictly liable; in the second, only the risk averse agent is The monetary sanction and the probability of detection function are the same in both cases. Our models shows that shifting the liability upon the risk averse agent reduces the principal net benefit, thus favoring deterrence of wrongdoing; however, it can also either increase or reduce the agent effort in cheating. For a specific model we are able to characterize cases in which a reduction in cheating prevails, and shifting the liability upon the agent has clear-cut beneficial effects on compliance.
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Bibliographic InfoPaper provided by Institute of Public Policy and Public Choice - POLIS in its series POLIS Working Papers with number 1.
Length: 36 pages
Date of creation: Dec 1998
Date of revision:
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Web page: http://polis.unipmn.it
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
- NEP-CDM-2002-07-04 (Collective Decision-Making)
- NEP-MIC-2002-07-05 (Microeconomics)
- NEP-PKE-1999-04-13 (Post Keynesian Economics)
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.:
- Reinganum, Jennifer F & Wilde, Louis L, 1991.
"Equilibrium Enforcement and Compliance in the Presence of Tax Practitioners,"
Journal of Law, Economics and Organization,
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- Bissey, Marie-Edith & Ortona, Guido, 2002. "A simulative frame to study the integration of defectors in a cooperative setting," POLIS Working Papers 24, Institute of Public Policy and Public Choice - POLIS.
- Privileggi, Fabio & Marchese, Carla & Cassone, Alberto, 2001. "Agent's liability versus principal's liability when attitudes toward risk differ," International Review of Law and Economics, Elsevier, vol. 21(2), pages 181-195, June.
- Bondonio, Daniele, 2001. "Evaluating Decentralized Policies: How to Compare the Performance of Economic Development Programs across Different Regions or States," POLIS Working Papers 16, Institute of Public Policy and Public Choice - POLIS.
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