English, Article, Journal or magazine article edition: Limited Liability and the Risk-Incentive Relationship Matthias Kräkel; Jörg Budde; Matthias Kräkel

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Bookmark: http://trove.nla.gov.au/version/52743
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Limited Liability and the Risk-Incentive Relationship
Author
  • Matthias Kräkel
  • Jörg Budde
  • Matthias Kräkel
Physical Description
  • preprint
Notes
  • Several empirical ï¬ndings have challenged the traditional view on the trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained. Increasing risk leads to a less informative performance signal. Under limited liability, the principal may optimally react by increasing the weight on the signal and, hence, choosing higher-powered incentives.
  • RePEc:trf:wpaper:232
  • moral hazard, limited liability, risk-incentive relationship Abstract: Several empirical findings have challenged the traditional view on the trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empiri- cal puzzle on the positive relationship between risk and incentives can be explained. Increasing risk leads to a less informative performance signal. Under limited liability, the principal may optimally react by in- creasing the weight on the signal and, hence, choosing higher-powered incentives.
  • RePEc:bon:bonedp:bgse6_2008
Language
  • English
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