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Kräkel, Matthias (April 2007): Limited Liability and the Trade-off between Risk and Incentives. SFB/TR 15 Discussion Paper No. 201 [PDF, 144kB]


Several empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

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