0
$\begingroup$

What is the intuition behind a decreasing performance pay ß if both principal and agent are risk averse compared to a principal being risk neutral and an agent being risk averse?

Actually, intuitively I think it would make more sense if the performance pay to the agent increases, such that the agent would bear more risk, so more risk is relocated from principal to agent if the principal is risk averse as well.

$\endgroup$
  • $\begingroup$ "...decreasing performance pay ß if both principal and agent are risk averse compared to a principal being risk neutral and an agent being risk averse"---what's the source of this claim? $\endgroup$ – Michael Jul 20 at 9:51

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.