The Effects of Risk Aversion on Production Decisions in Decentralized Organizations
This paper presents a principal-agent model in which subsequent to contracting the risk averse agent becomes informed about the production process. Communication of the agent's information is always valuable. The optimal contract given this information asymmetry is characterized by less production and a larger risk premium than when information is symmetric, leading to an efficiency loss. Comparative statics show that the loss in expected production increases as the agent becomes more risk averse.
Year of publication: |
1993
|
---|---|
Authors: | Arya, Anil ; Fellingham, John C. ; Young, Richard A. |
Published in: |
Management Science. - Institute for Operations Research and the Management Sciences - INFORMS, ISSN 0025-1909. - Vol. 39.1993, 7, p. 794-805
|
Publisher: |
Institute for Operations Research and the Management Sciences - INFORMS |
Subject: | agency theory | asymmetric information | efficiency loss | risk aversion |
Saved in:
Online Resource
Saved in favorites
Similar items by subject
-
Incentive schemes, private information and the double-edged role of competition for agents
Bannier, Christina E., (2016)
-
Mehri, Meryem, (2017)
-
Evidence of moral hazard in employee performance : an empirical analysis of contract theory
Panicker, Preetha G., (2023)
- More ...
Similar items by person