The Trade-Off Between Incentives and Endogenous Risk

Limited Liability and the Trade-off between Risk and Incentives

The Tenuous Trade-Off between Risk and Incentives

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Risk-incentives trade-off and outside options∗

Despite the prominence of the risk-incentives trade-off in the agency theory, empirical evidence provides at best a mixed result. In this paper, we argue that these mixed results may be attributed to the heterogeneity of risk aversion magnitude among the agents and the outside options available on the market. We show that when an increase of the uncertainty amplifies the riskiness of principal’...

Costly carotenoids: a trade-off between predation and infection risk?

Carotenoid reserves in copepods seem costly in terms of predation risk because they make individuals conspicuous. However, carotenoids also seem to play an important role in immune defence as free radical scavengers. To test whether predation risk influences carotenoid levels and whether changes in carotenoid levels are related to changes in immune defence, I examined individual changes in larg...

Endogenous Risk, Incentives and Aggregate Fluctuations

This paper analyzes a model in which incentive constrained contracting implies both ampli cation and intertemporal propagation of technology shocks. In the model risk averse agents choose between a riskless technology and a risky technology with higher expected return but also with moral hazard. Under the assumption of decreasing absolute risk aversion and intratemporal incentive provision agen...