Do managers with limited liability take more risky decisions? An information acquisition model

Arbeitspapier

Risk-neutral individuals take more risky decisions when they have limited liability. Risk-neutral managers may not when acting as agents under contract and taking costly actions to acquire information before taking decisions. Limited liability makes it optimal to increase the reward for outcomes relatively more likely to arise from desirable than from undesirable actions. The resulting decisions may be less, rather than more, risky. Making a decision after acquiring information provides an additional reason to those in the classic principal-agent literature for using contracts with pay increasing in the return. Further results on the form of contracts are also derived.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2943

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory ; Compensation Packages; Payment Methods ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Subject: managers ; risky decisions ; limited liability ; principal-agent contracts ; asymmetric information ; Führungskräfte ; Informationsbeschaffung ; Haftung ; Asymmetrische Information ; Entscheidung ; Risikofreude ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Malcomson, James M.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/30736
• Last update: 10.03.2025, 11:46 AM CET