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An Agents Preferences and the principals Incentive Cost in the Agency Problem

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  • Jin Yong Jung

Abstract

We provide the general results about the question of what e ects the change of an agents preferences over income and e ort has on a risk-neutral principals incentive cost. We argue that there are two factors a ecting the principals incentive cost. One is the agents risk aversion and the other is his incentive sensitivity. We show that the increase in the agents risk aversion or the decrease in his incentive sensitivity leads to the increase in the principals incentive cost. And, we show that it is possible that the principal prefers the more risk averse agent.

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  • Jin Yong Jung, 2017. "An Agents Preferences and the principals Incentive Cost in the Agency Problem," Working Paper Series no97, Institute of Economic Research, Seoul National University.
    • Handle: RePEc:snu:ioerwp:no97
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