Compensation contracts for prudent and risk averse agents Job Market Paper preliminary version

Abstract

The fundamental tradeoff between aversion to downside risk and the greater incentive power of punishments determines the form of compensation contracts. With quadratic utility, there is no aversion to downside risk, so concave contracts dominate convex contracts. When the third derivative of the utility function is positive, then convexity is valuable… (More)

14 Figures and Tables

Topics

  • Presentations referencing similar topics