In a principal-agent problem, if the contract implies that the more risk-averse agent will bear less risk, we can say that this contract exhibits A.risk sharing is not optimal because the less risk-averse (or risk-neutral) agent should bear none of the risk. B.efficiency in risk-bearing. C.risk sharing is not optimal because risk-neutral agents should face no risk. D.risk sharing is not optimal because all risk should be transferred to the most risk-averse agent.
In a principal-agent problem, if the contract implies that the more risk-averse agent will bear less risk, we can say that this contract exhibits A.risk sharing is not optimal because the less risk-averse (or risk-neutral) agent should bear none of the risk. B.efficiency in risk-bearing. C.risk sharing is not optimal because risk-neutral agents should face no risk. D.risk sharing is not optimal because all risk should be transferred to the most risk-averse agent.
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.4P
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In a principal-agent problem, if the contract implies that the more risk-averse agent will bear less risk, we can say that this contract exhibits
A.risk sharing is not optimal because the less risk-averse (or risk-neutral) agent should bear none of the risk.
B.efficiency in risk-bearing.
C.risk sharing is not optimal because risk-neutral agents should face no risk.
D.risk sharing is not optimal because all risk should be transferred to the most risk-averse agent.
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