Optimal Incentives in a Principal-Agent Model with Endogenous Technology
AbstractOne of the standard predictions of the agency theory is that more incentives can be given to agents with lower risk aversion. In this paper we show that this relationship may be absent or reversed when the technology is endogenous and projects with a higher e¢ ciency are also riskier. Using a modi ed version of the Holmstrom and Milgroms (1987) framework, we obtain that lower agents risk aversion unambiguously leads to higher incentives when the technology function linking e¢ ciency and riskiness is elastic, while the risk aversion-incentive relation- ship can be positive when this function is rigid.
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Bibliographic InfoPaper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 1304.
Length: 10 pages
Date of creation: 2013
Date of revision: 2013
Principal-agent; Incentives; Risk aversion; Endogenous technolog;
Other versions of this item:
- Marco A. Marini & Paolo Polidori & Desiree Teobaldelli & Davide Ticchi, 2014. "Optimal Incentives in a Principal-Agent Model with Endogenous Technology," DIAG Technical Reports 2014-01, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
- NEP-CTA-2013-10-25 (Contract Theory & Applications)
- NEP-HRM-2013-10-25 (Human Capital & Human Resource Management)
- NEP-MIC-2013-10-25 (Microeconomics)
- NEP-ORE-2013-10-25 (Operations Research)
- NEP-PPM-2013-10-25 (Project, Program & Portfolio Management)
- NEP-UPT-2013-10-25 (Utility Models & Prospect Theory)
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