Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model

James Malcomson

Journal of Economics & Management Strategy, 2011, vol. 20, issue 1, 83-120

Abstract: Risk‐neutral individuals take more risky decisions when they have limited liability. Risk‐neutral managers may not when acting as agents under contract and taking costly actions to acquire information before taking decisions. Limited liability makes it optimal to increase the reward for outcomes relatively more likely to arise from desirable than from undesirable actions. The resulting decisions may be less, rather than more, risky. Making a decision after acquiring information provides an additional reason to those in the classic principal‐agent literature for using contracts with pay increasing in the return. Further results on the form of contracts are also derived.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1111/j.1530-9134.2010.00284.x

Related works:
Working Paper: Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model (2010)
Working Paper: Do Managers with Limited Liability Take More Risky Decisions? An Information Acquisition Model (2009)
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: https://EconPapers.repec.org/RePEc:bla:jemstr:v:20:y:2011:i:1:p:83-120

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=1058-6407&site=1

Access Statistics for this article

More articles in Journal of Economics & Management Strategy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().