One 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 Milgrom s (1987) framework, we obtain that lower agent s risk aversion unambiguously leads to higher incentives when the technology function linking e¢ ciency and riskiness is elastic, while the risk aversion-incentive relationship can be positive when this function is rigid.
Optimal Incentives in a Principal-Agent Model with Endogenous Technology / Marini, Marco; P., Polidori; D., Teobaldelli; D., Ticchi. - In: QUADERNI DI ECONOMIA, MATEMATICA E STATISTICA. - ISSN 1594-7645. - ELETTRONICO. - 2013-4:WP-EMS(2013), pp. 1-8.
Optimal Incentives in a Principal-Agent Model with Endogenous Technology
MARINI, MARCO;
2013
Abstract
One 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 Milgrom s (1987) framework, we obtain that lower agent s risk aversion unambiguously leads to higher incentives when the technology function linking e¢ ciency and riskiness is elastic, while the risk aversion-incentive relationship can be positive when this function is rigid.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.