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Title: Risk Aversion and Incentives
Authors: Fagart, Marie-Cécile
Fluet, Claude
Keywords: Expected utility
Risk aversion
Comparative statics
Mean utility preserving increase in risk
Location independent risk
Issue Date: 2014-01
Series/Report no.: Cahiers du CIRPÉE;2014-05
Abstract: We consider decision-makers facing a risky wealth prospect. The probability distribution depends on pecuniary effort, e.g., the amount invested in a venture or prevention expenditures to protect against accidental losses. We provide necessary local conditions and sufficient global conditions for greater risk aversion to induce more (or less) investment or to have no effect. We apply our results to incentives in the principal-agent framework when differently risk averse agents face the same monetary incentives.
Appears in Collections:Cahiers de recherche du CIRPÉE

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