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The Negative Trade-off Between Risk and Incentives: Evidence from the American Whaling Industry

Eric Hilt

No 11960, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the trade-off between risk and incentives in the share contracts of the American whaling industry. Using a newly-collected panel of 5,378 individuals who sailed on whaling voyages from 1855-68, the response of sailors' compensation to an increase in risk is estimated. The risks used to identify this response resulted from the commerce-raiding naval vessels of the Confederacy during the Civil War. As the Confederate cruisers sailed primarily in the Atlantic, and therefore posed far less of a threat to whaling voyages to other oceans, a quasi-experimental approach, focussing on the differences between Atlantic voyages compared to others, is implemented. The results support the existence of a negative trade-off between risk and incentives in the industry's contracts. Moreover, evidence is found of selection among less risk-averse sailors and merchants into riskier voyages during the war.

JEL-codes: N5 L2 J3 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-his
Note: DAE
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Published as Hilt, Eric. "Incentives In Corporations: Evidence From The American Whaling Industry," Journal of Law and Economics, 2006, v49(1,Apr), 197-227.
Published as Hilt, Eric, 2008. "The negative trade-off between risk and incentives: Evidence from the american whaling industry," Explorations in Economic History, Elsevier, vol. 45(4), pages 424-444, September.

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