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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/30736
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| Title: | | Do managers with limited liability take more risky decisions? An information acquisition model  |
| Authors: | | Malcomson, James M. |
| Issue Date: | | 2010 |
| Series/Report no.: | | CESifo working paper 2943 |
| Abstract: | | 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. |
| Subjects: | | managers risky decisions limited liability principal-agent contracts asymmetric information |
| JEL: | | D82 D86 J33 M52 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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