Does Bonus Deferral Reduce Risk Taking?
28 Pages Posted: 22 Aug 2010 Last revised: 23 Jul 2014
Date Written: July 23, 2014
We characterize continuous-time risk taking and show that the introduction of deferral increases risk taking at any time when the realized asset value is large or small. For realized asset values in-between we derive the parameterizations of deferral for which risk taking decreases and discuss trade-offs in setting the deferral parameters.
Keywords: bonus, risk, risk aversion, deferral ratio
JEL Classification: G28, G38
Suggested Citation: Suggested Citation