Econometrica, 2010-01, Vol.78 (1), p.73-118
2010
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Details
- Autor(en) / Beteiligte
- Titel
- Large Risks, Limited Liability, and Dynamic Moral Hazard
- Ist Teil von
- Econometrica, 2010-01, Vol.78 (1), p.73-118
- Ort / Verlag
- Oxford, UK: Blackwell Publishing Ltd
- Erscheinungsjahr
- 2010
- Quelle
- Wiley Online Library - AutoHoldings Journals
- Beschreibungen/Notizen
- We study a continuous-time principal—agent model in which a risk-neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses. Firm size can be decreased at no cost or increased subject to adjustment costs. In the optimal contract, investment takes place only if a long enough period of time elapses with no losses occurring. Then, if good performance continues, the agent is paid. As soon as a loss occurs, payments to the agent are suspended, and so is investment if further losses occur. Accumulated bad performance leads to downsizing. We derive explicit formulae for the dynamics of firm size and its asymptotic growth rate, and we provide conditions under which firm size eventually goes to zero or grows without bounds.
- Sprache
- Englisch
- Identifikatoren
- ISSN: 0012-9682eISSN: 1468-0262DOI: 10.3982/ECTA7261Titel-ID: cdi_hal_primary_oai_HAL_halshs_00491470v1
- Format
- –
- Schlagworte
- Agency theory, Applications, Constant returns to scale, continuous time, Contract incentives, Contracts, downsizing, Economics and Finance, Exact sciences and technology, Financial investments, firm size dynamics, Firm theory, Growth rate, Humanities and Social Sciences, Insurance, economics, finance, investment, Investment risk, Investment value, Layoffs, Liability insurance, Limit of liability, Limited liability, Losses, Mathematics, Moral hazard, Moral hazard models, Poisson risk, Principal-agent model, Principal-agent theory, Probability and statistics, Risk management, Risk theory, Sciences and techniques of general use, Size of enterprise, Statistics, Studies