Sharing with a risk-neutral agent
In the standard solution to the principal–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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Levine's Working Paper Archive
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9118, Federal Reserve Bank of Cleveland.
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Levine's Working Paper Archive
1205, David K. Levine.
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