The Risk and Incentives Trade-off in the Presence of Heterogeneous Managers

Donald Wright

Journal of Economics, 2004, vol. 83, issue 3, 209-223

Abstract: Agency theory predicts a negative relationship between risk and incentives, yet recent empirical evidence has not consistently found such a relationship. In fact, some researchers have found a positive relationship. By introducing competition for heterogeneous managers, who differ in their degrees of risk aversion, into a standard agency model, this paper demonstrates that a negative or positive relationship is theoretically possible. Which arises depends on the relative risk aversion parameters of the managers and the absolute and relative riskiness of the environments. Copyright Springer-Verlag Wien 2004

Keywords: incentives; risk; L2 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:83:y:2004:i:3:p:209-223

DOI: 10.1007/s00712-004-0085-7

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