Sharing with a risk-neutral agent
In the standard solution to the principalâ€“agent problem, a risk-neutral agent bears all the risk. The author shows that, in fact, multiple solutions exist, and often the risk-neutral agent is not the sole bearer of risk. As risk aversion approaches zero, the unique risk-averse solution converges to the risk-neutral solution, wherein the agent bears the least amount of risk. Even a small degree of risk aversion can result in agents bearing significantly less risk than the standard solution suggests.
Volume (Year): (2001)
Issue (Month): Q I ()
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References listed on IDEAS
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- Joseph G. Haubrich, 1991.
"Risk aversion, performance pay, and the principal-agent problem,"
9118, Federal Reserve Bank of Cleveland.
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Rodney L. White Center for Financial Research Working Papers
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