Open Daily: 10am - 10pm | Alley door pickup 10am - 7pm 3038 Hennepin Ave Minneapolis, MN
612-822-4611

  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Agent Discretion, Adverse Selection and the Risk-Incentive Trade-Off

Agent Discretion, Adverse Selection and the Risk-Incentive Trade-Off

Federal Trad Commission

Paperback

Business General

ISBN10: 1502739534
ISBN13: 9781502739537
Publisher: Createspace
Published: Oct 7 2014
Pages: 32
Weight: 0.22
Height: 0.07 Width: 8.50 Depth: 11.02
Language: English
A basic tenet of incentive theory states that there is a trade-off between risk and incentives. By implication, greater variation in firm profits leads to a reduction in the use of profit sharing. Surprisingly, there is little empirical evidence for this relationship. This book reexamines the difference between the theoretical prediction and the empirical evidence, and shows that the key is agent discretion over task choice. A theoretical model represents agent discretion as an adverse selection problem. This model guides the empirical analysis of contracts given to employees in British manufacturing firms. For employees without discretion over the tasks they perform, there is a negative relationship between variation in firm profits and the use of profit sharing. For employees with discretion, there is a positive relationship.

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