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This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically, even...
Persistent link: https://www.econbiz.de/10012457937
substantially increasing the risk borne by contractors …
Persistent link: https://www.econbiz.de/10012461011
This paper presents a market equilibrium model of CEO assignment, pay and incentives under risk aversion and … distorted by the agency problem as firms involving higher risk or disutility choose less talented CEOs. Such firms also pay … higher salaries in the cross-section, but economy-wide increases in risk or the disutility of being a CEO (e.g. due to …
Persistent link: https://www.econbiz.de/10012462666
Empirical work testing for a negative tradeoff between risk and incentives, a cornerstone of agency theory, has not had …
Persistent link: https://www.econbiz.de/10012470935
intensity is shown to induce a higher default rate and to raise the country risk as reflected in the interest rate associated … default penalty eliminates the adverse effects of country risk on expected income. For such an economy a contingency plan that … effective magnitude of country risk and the incidence of default …
Persistent link: https://www.econbiz.de/10012477039
Principal-agent models take outside options, determining participation and incentive constraints, as given. We construct a general equilibrium model where workers' reservation wages and the maximum punishment acceptable before workers quit are instead determined endogenously. We simultaneously...
Persistent link: https://www.econbiz.de/10014635663
provision of marginal incentives, and applies the theory to explain variation in the form of compensation of over-the-road truck … of hauls in a way that is consistent with the theory. By contrast, we find that vehicle ownership, which defines a driver …
Persistent link: https://www.econbiz.de/10012469856
There are a large number of cases where corruption has been discovered investigating levels of consumption that appear to be hard to justify. Yet, in the standard moral hazard model withholding of effort by the agent is not observable to the principal. We argue that this assumption has to be...
Persistent link: https://www.econbiz.de/10012465490
insurer risk retention. We then use panel data on U.S. property liability reinsurance to test the model. The empirical results …
Persistent link: https://www.econbiz.de/10012469663
trade off between risk and return. Banks may mitigate the resultant excessive risk by costly monitoring, where greater risk … reduction requires more resources devoted to risk supervision. Hence, the excessive risk associated with moral hazard is … endogenously determined. We show that a drop in banks' cost of funds increases the risk tolerated by banks in a competitive …
Persistent link: https://www.econbiz.de/10012472110