Optimal Incentives in a Principal-Agent Model with Endogenous Technology

Marco Marini, Paolo Polidori, Davide Ticchi () and Désirée Teobaldelli

No 1304, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

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 modified 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 relation- ship can be positive when this function is rigid.

Keywords: Principal-agent; Incentives; Risk aversion; Endogenous technolog (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2013, Revised 2013
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-mic, nep-ore, nep-ppm and nep-upt
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Citations: View citations in EconPapers (1)

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http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_13_04.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: Optimal Incentives in a Principal–Agent Model with Endogenous Technology (2018)
Working Paper: Optimal Incentives in a Principal-Agent Model with Endogenous Technology (2014)
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