Optimal Incentives in a Principal-Agent Model with Endogenous Technology

Marco Marini, Paolo Polidori, Désirée Teobaldelli and Davide Ticchi ()

No 2014-01, DIAG Technical Reports from Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"

Abstract: One of the standard predictions of the agency theory is that more incentives can be given to agents with lower risk aversion. In this paper we show that this relationship may be absent or reversed when the technology is endogenous and projects with a higher efficiency are also riskier. Using a modified version of the Holmstrom and Milgrom's (1987) framework, we obtain that lower agent's risk aversion unambiguously leads to higher incentives when the technology function linking efficiency and riskiness is elastic, while the risk aversion-incentive relationship can be positive when this function is rigid

Keywords: principal-agent; incentives; risk aversion; endogenous technology (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-mic and nep-upt
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http://www.dis.uniroma1.it/~bibdis/RePEc/aeg/report/2014-01.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Optimal Incentives in a Principal–Agent Model with Endogenous Technology (2018)
Working Paper: Optimal Incentives in a Principal-Agent Model with Endogenous Technology (2013)
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