The trade-off between incentives and endogenous risk
Autor(a) principal: | |
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Data de Publicação: | 2004 |
Outros Autores: | , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Institucional do FGV (FGV Repositório Digital) |
Texto Completo: | http://hdl.handle.net/10438/400 |
Resumo: | Standard models of moral hazard predict a negative relationship between risk and incentives, but the empirical work has not confirmed this prediction. In this paper, we propose a model with adverse selection followed by moral hazard, where effort and the degree of risk aversion are private information of an agent who can control the mean and the variance of profits. For a given contract, more risk-averse agents suppIy more effort in risk reduction. If the marginal utility of incentives decreases with risk aversion, more risk-averse agents prefer lower-incentive contractsj thus, in the optimal contract, incentives are positively correlated with endogenous risk. In contrast, if risk aversion is high enough, the possibility of reduction in risk makes the marginal utility of incentives increasing in risk aversion and, in this case, risk and incentives are negatively related. |
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Tsuchida, Marcos H.Araújo, Aloísio Pessoa deMoreira, Humberto AtaídeEscolas::EPGEFGV2008-05-13T15:23:32Z2008-05-13T15:23:32Z2004-02-010104-8910http://hdl.handle.net/10438/400Standard models of moral hazard predict a negative relationship between risk and incentives, but the empirical work has not confirmed this prediction. In this paper, we propose a model with adverse selection followed by moral hazard, where effort and the degree of risk aversion are private information of an agent who can control the mean and the variance of profits. For a given contract, more risk-averse agents suppIy more effort in risk reduction. If the marginal utility of incentives decreases with risk aversion, more risk-averse agents prefer lower-incentive contractsj thus, in the optimal contract, incentives are positively correlated with endogenous risk. In contrast, if risk aversion is high enough, the possibility of reduction in risk makes the marginal utility of incentives increasing in risk aversion and, in this case, risk and incentives are negatively related.engEscola de Pós-Graduação em Economia da FGVEnsaios Econômicos;523The trade-off between incentives and endogenous riskinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleEconomiaEconomiaRisco (Economia)Investimentos - Administraçãoreponame:Repositório Institucional do FGV (FGV Repositório Digital)instname:Fundação Getulio Vargas (FGV)instacron:FGVinfo:eu-repo/semantics/openAccessTEXT1534.pdf.txt1534.pdf.txtExtracted Texttext/plain12262https://repositorio.fgv.br/bitstreams/bd0959d8-4faa-4a93-ac69-55ffb75062cf/downloaded001b30a09a512d11c9a68fad9b8182MD521534 (2).pdf.txt1534 (2).pdf.txtExtracted texttext/plain47277https://repositorio.fgv.br/bitstreams/31c41d89-9f00-475d-99b8-94e387b73438/download97cada4b935e1abfd3fd6ba691845f37MD59ORIGINAL1534 (2).pdf1534 (2).pdfapplication/pdf6579734https://repositorio.fgv.br/bitstreams/6decea5c-1bde-40c0-bb2b-24aef4fa9582/downloadfeea529db7dacf225697b86a779901a1MD54THUMBNAIL1534 (2).pdf.jpg1534 (2).pdf.jpgGenerated Thumbnailimage/jpeg3478https://repositorio.fgv.br/bitstreams/fe85dc94-8256-44a0-965f-932d5d1aa10a/downloada10c4eb38b47bcc7cad886b39dd4c59dMD51010438/4002023-11-09 16:13:52.545open.accessoai:repositorio.fgv.br:10438/400https://repositorio.fgv.brRepositório InstitucionalPRIhttp://bibliotecadigital.fgv.br/dspace-oai/requestopendoar:39742023-11-09T16:13:52Repositório Institucional do FGV (FGV Repositório Digital) - Fundação Getulio Vargas (FGV)false |
dc.title.eng.fl_str_mv |
The trade-off between incentives and endogenous risk |
title |
The trade-off between incentives and endogenous risk |
spellingShingle |
The trade-off between incentives and endogenous risk Tsuchida, Marcos H. Economia Economia Risco (Economia) Investimentos - Administração |
title_short |
The trade-off between incentives and endogenous risk |
title_full |
The trade-off between incentives and endogenous risk |
title_fullStr |
The trade-off between incentives and endogenous risk |
title_full_unstemmed |
The trade-off between incentives and endogenous risk |
title_sort |
The trade-off between incentives and endogenous risk |
author |
Tsuchida, Marcos H. |
author_facet |
Tsuchida, Marcos H. Araújo, Aloísio Pessoa de Moreira, Humberto Ataíde |
author_role |
author |
author2 |
Araújo, Aloísio Pessoa de Moreira, Humberto Ataíde |
author2_role |
author author |
dc.contributor.unidadefgv.por.fl_str_mv |
Escolas::EPGE |
dc.contributor.affiliation.none.fl_str_mv |
FGV |
dc.contributor.author.fl_str_mv |
Tsuchida, Marcos H. Araújo, Aloísio Pessoa de Moreira, Humberto Ataíde |
dc.subject.area.por.fl_str_mv |
Economia |
topic |
Economia Economia Risco (Economia) Investimentos - Administração |
dc.subject.bibliodata.por.fl_str_mv |
Economia Risco (Economia) Investimentos - Administração |
description |
Standard models of moral hazard predict a negative relationship between risk and incentives, but the empirical work has not confirmed this prediction. In this paper, we propose a model with adverse selection followed by moral hazard, where effort and the degree of risk aversion are private information of an agent who can control the mean and the variance of profits. For a given contract, more risk-averse agents suppIy more effort in risk reduction. If the marginal utility of incentives decreases with risk aversion, more risk-averse agents prefer lower-incentive contractsj thus, in the optimal contract, incentives are positively correlated with endogenous risk. In contrast, if risk aversion is high enough, the possibility of reduction in risk makes the marginal utility of incentives increasing in risk aversion and, in this case, risk and incentives are negatively related. |
publishDate |
2004 |
dc.date.issued.fl_str_mv |
2004-02-01 |
dc.date.accessioned.fl_str_mv |
2008-05-13T15:23:32Z |
dc.date.available.fl_str_mv |
2008-05-13T15:23:32Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
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article |
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publishedVersion |
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http://hdl.handle.net/10438/400 |
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0104-8910 |
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0104-8910 |
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http://hdl.handle.net/10438/400 |
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eng |
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Ensaios Econômicos;523 |
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info:eu-repo/semantics/openAccess |
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openAccess |
dc.publisher.none.fl_str_mv |
Escola de Pós-Graduação em Economia da FGV |
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Escola de Pós-Graduação em Economia da FGV |
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