On the Role of Uncertainty in the Risk-Incentives Tradeoff

Rantakari Heikki V
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Rantakari Heikki V: University of Southern California, rantakar@marshall.usc.edu

The B.E. Journal of Theoretical Economics, 2008, vol. 8, issue 1, 25

Abstract: We use a simple agency model to clarify and characterize the various avenues through which changes in the level of uncertainty impact the optimal strength of linear incentives. Instead of attempting to characterize different "types" of uncertainty, which has been the approach in the literature so far, we base our characterization on the link between uncertainty and the agent's action choice. We then use this characterization to provide conditions under which the relationship between uncertainty and incentives can be positive and relate it back to the existing models in the literature.

Keywords: uncertainty; incentives; agency models (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (7)

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DOI: 10.2202/1935-1704.1407

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