Correlation neglect, incentives, and welfare
Andreas Klümper and
Matthias Kräkel
Economics Letters, 2020, vol. 192, issue C
Abstract:
We modify the Holmström–Milgrom model by letting the agent neglect the correlation between performance measures. Whenever true and perceived correlation are sufficiently low, correlation neglect enhances material welfare and expected profit. Otherwise, material welfare diminishes, and the agent may benefit.
Keywords: Behavioral contract theory; Moral hazard; Risk aversion (search for similar items in EconPapers)
JEL-codes: A12 D82 D86 D9 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176520301312
Full text for ScienceDirect subscribers only
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: https://EconPapers.repec.org/RePEc:eee:ecolet:v:192:y:2020:i:c:s0165176520301312
DOI: 10.1016/j.econlet.2020.109171
Access Statistics for this article
Economics Letters is currently edited by Economics Letters Editorial Office
More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().