Sharing with a risk-neutral agent

Joseph Haubrich

Economic Review, 2001, issue Q I, 2-8

Abstract: In the standard solution to the principal?agent problem, a risk-neutral agent bears all the risk. The author shows that, in fact, multiple solutions exist, and often the risk-neutral agent is not the sole bearer of risk. As risk aversion approaches zero, the unique risk-averse solution converges to the risk-neutral solution, wherein the agent bears the least amount of risk. Even a small degree of risk aversion can result in agents bearing significantly less risk than the standard solution suggests.

Date: 2001
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Working Paper: Sharing with a risk-neutral agent (1993)
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