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The negative trade-off between risk and incentives: Evidence from the american whaling industry

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  • Hilt, Eric

Abstract

This paper analyzes the trade-off between risk and incentives in the share contracts of the American whaling industry. Using a newly collected panel of 5378 individuals who sailed on more than 1000 whaling voyages from 1855-68, the response of sailors' compensation to an increase in risk is estimated. The risks used to identify this response resulted from the commerce-raiding naval vessels of the Confederacy during the Civil War. As the Confederate cruisers sailed primarily in the Atlantic, and therefore posed far less of a threat to whaling voyages to other oceans, a quasi-experimental approach focusing on the differences between Atlantic voyages compared to others is implemented. The results are consistent with a negative trade-off between risk and incentives in the industry's contracts. Moreover, evidence is found of selection among less risk-averse sailors and merchants into riskier voyages during the war.

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  • Hilt, Eric, 2008. "The negative trade-off between risk and incentives: Evidence from the american whaling industry," Explorations in Economic History, Elsevier, vol. 45(4), pages 424-444, September.
    • Handle: RePEc:eee:exehis:v:45:y:2008:i:4:p:424-444
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    Cited by:

    1. Grund, Christian & Sliwka, Dirk, 2006. "Performance Pay and Risk Aversion," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 101, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Glaser, Darrell J. & Rahman, Ahmed S., 2016. "Ex Tridenti Mercatus? Sea-power and maritime trade in the age of globalization," Journal of International Economics, Elsevier, vol. 100(C), pages 95-111.
    3. Dohmen, Thomas & Non, Arjan & Stolp, Tom, 2021. "Reference points and the tradeoff between risk and incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 813-831.
    4. Anja Schöttner, 2017. "Optimal Sales Force Compensation in Dynamic Settings: Commissions vs. Bonuses," Management Science, INFORMS, vol. 63(5), pages 1529-1544, May.
    5. Kräkel, Matthias & Schöttner, Anja, 2016. "Optimal sales force compensation," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 179-195.

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    More about this item

    Keywords

    Risk Incentives Whaling Compensation Civil war Moral hazard;

    JEL classification:

    • N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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