IDEAS home Printed from https://ideas.repec.org/a/rje/bellje/v13y1982iautumnp369-378.html
   My bibliography  Save this article

Risk Sharing and the Theory of the Firm

Author

Listed:
  • Alan J. Marcus

Abstract

When effort cannot be costlessly monitored, Pareto optimal employee compensation schemes require that owners and managers deviate from perfect risk sharing to improve the work incentives facing the manager. This article investigates the implications of this misallocation of risk for the behavior of firms in which managers make decisions for owners. The presented model predicts that, from the owner's perspective, managers will exhibit excessive risk aversion and underinvest in risky projects.

Suggested Citation

  • Alan J. Marcus, 1982. "Risk Sharing and the Theory of the Firm," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 369-378, Autumn.
  • Handle: RePEc:rje:bellje:v:13:y:1982:i:autumn:p:369-378
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0361-915X%28198223%2913%3A2%3C369%3ARSATTO%3E2.0.CO%3B2-G&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Manish Gupta, 2011. "Dividends and Cost of Capital - An Empirical Study on REITs," ERES eres2011_56, European Real Estate Society (ERES).
    2. Abe, Naohito & Gaston, Noel & Kubo, Katsuyuki, 2005. "Executive pay in Japan: the role of bank-appointed monitors and the Main Bank relationship," Japan and the World Economy, Elsevier, vol. 17(3), pages 371-394, August.
    3. Erica L. Plambeck & Stefanos A. Zenios, 2003. "Incentive Efficient Control of a Make-to-Stock Production System," Operations Research, INFORMS, vol. 51(3), pages 371-386, June.
    4. Esty, Benjamin C., 1998. "The impact of contingent liability on commercial bank risk taking," Journal of Financial Economics, Elsevier, vol. 47(2), pages 189-218, February.
    5. Polinsky, A Mitchell, 1987. "Fixed Price versus Spot Price Contracts: A Study in Risk Allocation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 3(1), pages 27-46, Spring.
    6. Yermack, David, 1995. "Do corporations award CEO stock options effectively?," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 237-269.
    7. Yi Bingsheng & Chen Chia-wei & Lin Barry, 2018. "Directors’ and Officers’ Liability Insurance and Firm Performance: Evidence from Taiwan," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 12(2), pages 1-15, July.
    8. Peter Wright & Mark Kroll & Ananda Mukherji & Michael Pettus, 2009. "Do the contingencies of external monitoring, ownership incentives, or free cash flow explain opposing firm performance expectations?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 13(3), pages 215-243, August.
    9. Henry Tosi, 2008. "Quo Vadis? Suggestions for future corporate governance research," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(2), pages 153-169, May.
    10. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rje:bellje:v:13:y:1982:i:autumn:p:369-378. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.rje.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.