Arbeitspapier

Limited Liability and the Risk-Incentive Relationship

Several empirical findings have challenged the traditional view on the trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empiri- cal puzzle on the positive relationship between risk and incentives can be explained. Increasing risk leads to a less informative performance signal. Under limited liability; the principal may optimally react by in- creasing the weight on the signal and; hence; choosing higher-powered incentives.

Language
Englisch

Bibliographic citation
Series: Bonn Econ Discussion Papers ; No. 6/2008

Classification
Wirtschaft
Asymmetric and Private Information; Mechanism Design
Economics of Contract: Theory
Subject
moral hazard
limited liability
risk-incentive relationship
Moral Hazard
Beschränkte Haftung
Leistungsanreiz
Risikoaversion
Agency Theory
Theorie

Event
Geistige Schöpfung
(who)
Budde, Jörg
Kräkel, Matthias
Event
Veröffentlichung
(who)
University of Bonn, Bonn Graduate School of Economics (BGSE)
(where)
Bonn
(when)
2008

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Budde, Jörg
  • Kräkel, Matthias
  • University of Bonn, Bonn Graduate School of Economics (BGSE)

Time of origin

  • 2008

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