Moral Hazard, Entrepreneurial Incentives, and Risk Mitigation

Chandra S. Mishra and Ramona K. Zachary
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Chandra S. Mishra: Florida Atlantic University
Ramona K. Zachary: The City University of New York

Chapter 7 in The Theory of Entrepreneurship, 2014, pp 171-197 from Palgrave Macmillan

Abstract: Abstract Investors face, in addition to the adverse selection, the moral hazard when the entrepreneur’s effort is not directly observable. The moral hazard exists in that the entrepreneur might not provide a desired level of effort and not choose the tasks that maximize the investor’s return. Investors minimize losses from the moral hazard by incentivizing and monitoring the entrepreneur, and through their active and supportive involvement with the venture.

Keywords: Venture Capital; Moral Hazard; Adverse Selection; Venture Performance; External Risk (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-37146-1_7

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DOI: 10.1057/9781137371461_7

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