Solomonic Separation: Risk Decisions as Productivity Indicators

نویسندگان

  • Alexander F. Wagner
  • Richard J. Zeckhauser
  • John F. Kennedy
  • Nolan Miller
چکیده

A principal provides budgets to agents (e.g., divisions of a …rm or the principal’s children) whose expenditures provide her bene…ts, either materially or because of altruism. Only agents know their potential to generate bene…ts. We prove that if the more “productive” agents are also more risk-tolerant (as holds in the sample of individuals we surveyed), the principal can screen agents and bolster target e¢ ciency by o¤ering a choice between a nonrandom budget and a two-outcome risky budget. When, at very low allocations, the ratio of the more risk-averse type’s marginal utility to that of the other type is unbounded above (e.g., as with CRRA), the …rst-best is approached. –A biblical opening enlivens the analysis. JEL-Code: D82

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تاریخ انتشار 2012