We study a dynamic contracting problem in which size is relevant. The agent may take on excessive risk to enhance short … curb risk taking. Firms that are less prone to risk taking can afford a higher leverage …

Consider an agent who can costlessly add mean-preserving noise to his output. To deter such risk-taking, the principal … optimally offers a contract that makes the agent's utility concave in output. If the agent is risk-neutral and protected by … limited liability, this concavity constraint binds and so linear contracts maximize profit. If the agent is risk averse, the …

promised higher profitability partly because of better risk management made possible by advances in information technology and …. Because systemic risk cannot be fully privatized social insurance against it is inevitably a common pool (or open) resource …, which means that there is an incentive for financial units to over-extract in the form of excessive risk taking in the …

In this paper we consider a model where a risk-neutral principal devises a contract for a risk neutral agent who can … selection situation, even if both parties are risk neutral and private information of the agent is not correlated with the …