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Limited Liability and the Trade-off between Risk and Incentives

Matthias Kräkel

No 3/2007, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: everal empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

Keywords: limited liability; piece rates; risk aversion; risk-incentives trade-off (search for similar items in EconPapers)
JEL-codes: D01 M5 D82 J3 (search for similar items in EconPapers)
Date: 2007
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