منابع مشابه
Limited Liability and the Risk- Incentive Relationship
Several empirical findings have challenged the traditional view on the 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. Increasing risk leads to a less informative performance signal. Under limited liability, the principal may...
متن کاملPortfolio Delegation with Limited Liability
We consider the portfolio delegation problem in a world with potentially incomplete contingent claim markets. A principal hires an agent to manage a portfolio. When the agent has limited liability (that is, there is a lower bound on the compensation contract), she may have an incentive to take on excessive risk. With complete markets, the precise nature of the risk the agent may take on is a la...
متن کاملInterlinkage, limited liability and strategic interaction
The literature on interlinkage is inconclusive regarding the strict superiority of this arrangement. We analyze a landlord and a moneylender as two players making non-cooperative decisions regarding the terms of their respective contracts with a tenant. In the sequential game where the landlord moves first and the tenant has limited liability, we demonstrate that there exist circumstances in wh...
متن کاملRelational contracts, limited liability, and employment dynamics
This paper studies a relational contracting model in which the agent is protected by a limited liability constraint. The agent’s effort is his private information and affects the output stochastically. We characterize the optimal relational contract and compare the dynamics of the relationship with that under the optimal long-term contract. Under the optimal relational contract, the relationshi...
متن کاملLimited liability and mechanism design in procurement
In the presence of cost uncertainty, limited liability introduces the possibility of default in procurement with its associated bankruptcy costs. When nancial soundness is not perfectly observable, we show that incentive compatibility implies that nancially less sound contractors are selected with higher probability in any feasible mechanism. Informational rents are associated with unsound n...
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ژورنال
عنوان ژورنال: The University of Chicago Law Review
سال: 1985
ISSN: 0041-9494
DOI: 10.2307/1599572