Optimal Incentives in a Principal–Agent Model with Endogenous Technology
One of the standard predictions of the agency theory is that more incentives can be given to agents with lower risk aversion. In this paper, we show that this relationship may be absent or reversed when the technology is endogenous and projects with a higher efficiency are also riskier. Using a modi...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2018-02-01
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| Series: | Games |
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| Online Access: | http://www.mdpi.com/2073-4336/9/1/6 |
| _version_ | 1818429570701852672 |
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| author | Marco A. Marini Paolo Polidori Désirée Teobaldelli Davide Ticchi |
| author_facet | Marco A. Marini Paolo Polidori Désirée Teobaldelli Davide Ticchi |
| author_sort | Marco A. Marini |
| collection | DOAJ |
| description | One of the standard predictions of the agency theory is that more incentives can be given to agents with lower risk aversion. In this paper, we show that this relationship may be absent or reversed when the technology is endogenous and projects with a higher efficiency are also riskier. Using a modified version of the Holmstrom and Milgrom’s framework, we obtain that lower agent’s risk aversion unambiguously leads to higher incentives when the technology function linking efficiency and riskiness is elastic, while the risk aversion–incentive relationship can be positive when this function is rigid. |
| first_indexed | 2024-12-14T15:19:37Z |
| format | Article |
| id | doaj.art-34f34f3ab6b84a2da9cc5e7488915fa5 |
| institution | Directory Open Access Journal |
| issn | 2073-4336 |
| language | English |
| last_indexed | 2024-12-14T15:19:37Z |
| publishDate | 2018-02-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Games |
| spelling | doaj.art-34f34f3ab6b84a2da9cc5e7488915fa52022-12-21T22:56:12ZengMDPI AGGames2073-43362018-02-0191610.3390/g9010006g9010006Optimal Incentives in a Principal–Agent Model with Endogenous TechnologyMarco A. Marini0Paolo Polidori1Désirée Teobaldelli2Davide Ticchi3Department of Social and Economic Sciences, Sapienza University of Rome; Piazzale Aldo Moro 5, 00185 Rome, ItalyDepartment of Law, University of Urbino, Via Matteotti 1, 61029 Urbino, ItalyDepartment of Law, University of Urbino, Via Matteotti 1, 61029 Urbino, ItalyDepartment of Economics and Social Sciences, Marche Polytechnic University, Piazzale Martelli 8, 60121 Ancona, ItalyOne of the standard predictions of the agency theory is that more incentives can be given to agents with lower risk aversion. In this paper, we show that this relationship may be absent or reversed when the technology is endogenous and projects with a higher efficiency are also riskier. Using a modified version of the Holmstrom and Milgrom’s framework, we obtain that lower agent’s risk aversion unambiguously leads to higher incentives when the technology function linking efficiency and riskiness is elastic, while the risk aversion–incentive relationship can be positive when this function is rigid.http://www.mdpi.com/2073-4336/9/1/6principal–agentincentivesrisk aversionendogenous technology |
| spellingShingle | Marco A. Marini Paolo Polidori Désirée Teobaldelli Davide Ticchi Optimal Incentives in a Principal–Agent Model with Endogenous Technology Games principal–agent incentives risk aversion endogenous technology |
| title | Optimal Incentives in a Principal–Agent Model with Endogenous Technology |
| title_full | Optimal Incentives in a Principal–Agent Model with Endogenous Technology |
| title_fullStr | Optimal Incentives in a Principal–Agent Model with Endogenous Technology |
| title_full_unstemmed | Optimal Incentives in a Principal–Agent Model with Endogenous Technology |
| title_short | Optimal Incentives in a Principal–Agent Model with Endogenous Technology |
| title_sort | optimal incentives in a principal agent model with endogenous technology |
| topic | principal–agent incentives risk aversion endogenous technology |
| url | http://www.mdpi.com/2073-4336/9/1/6 |
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