Delegation of risky activities

Akihiro Watabe
Additional contact information
Akihiro Watabe: Department of Economics, Kanagawa University, 3-27-1 Rokkakubashi Kanagawa-ku, Yokohama, 221-8686, Japan, Postal: Department of Economics, Kanagawa University, 3-27-1 Rokkakubashi Kanagawa-ku, Yokohama, 221-8686, Japan

Managerial and Decision Economics, 2005, vol. 26, issue 5, pages 331-343

Abstract: This paper studies the delegation contract of a risky activity under the presence of adverse selection and moral hazard. The problem is posed as providing incentives from the principal to the agent to enhance the protective action of the agent through payment schemes. Given non-bankruptcy of both the principal and the agent, the principal rewards the agent if no accident occurs but penalizes the agent if an accident occurs. Given bankruptcy of either the principal or the agent, regardless of the agent's risk type, the agent is only rewarded with the same amount of remuneration and not penalized if the accident occurs. The social welfare level resulting from contracting processes depends on the asset levels of both parties and the agent's technology to reduce risks of the activity. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
View list of references

Downloads: (external link)
http://hdl.handle.net/10.1002/mde.1227 Link to full text; subscription required (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wly:mgtdec:v:26:y:2005:i:5:p:331-343

Access Statistics for this article

Managerial and Decision Economics is edited by Paul H. Rubin

More articles in Managerial and Decision Economics from John Wiley & Sons, Ltd.
Series data maintained by Christopher F. Baum ().