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School Attendance, Child Labor and Cash Transfers: An Impact Evaluation of PanesVeronica Amaranteaffiliation not provided to SSRN Mery FerrandoCatholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); Universidad de la República - Instituto de Economía Andrea VigoritoUniversidad de la Republica (Uruguay) - Instituto de Economia - Facultad de Ciencias Economicas February 9, 2012 PEP PIERI Working Paper No. 2011-22 Abstract: We use a comparative approach to study the incentives provided by different types of compensation contracts, and their valuation by risk averse managers, in a fairly general setting. We show that concave contracts tend to provide more incentives to risk averse managers, while convex contracts tend to be more valued by prudent managers. This is because concave contracts concentrate incentives where the marginal utility of risk averse managers is highest, while convex contracts protect against downside risk. Thus, prudence can contribute to explain the prevalence of stock-options in executive compensation. We also present a condition on the utility function which enables to compare the structure of optimal contracts associated with different risk preferences.
JEL Classification: I38, J13, I21, J22 working papers seriesDate posted: February 10, 2012Suggested CitationContact Information
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