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[ Article ] | |
Seoul Journal of Economics - Vol. 31, No. 1, pp. 99-119 | |
Abbreviation: SJE | |
ISSN: 1225-0279 (Print) | |
Print publication date 28 Feb 2018 | |
Received 05 Jan 2018 Revised 04 Feb 2018 Accepted 05 Feb 2018 | |
Optimal Contracts for Risk Managers | |
Jin Yong Jung
| |
Jin Yong Jung, Visiting Researcher, BK21 Education Research Program, Seoul National University, South Korea (econdragon@gmail.com) | |
Funding Information ▼ | |
JEL Classification: D82, D86, G32, J33, J41 |
This study analyzed the principal-agent problem, in which the agent performs risk management tasks, and considered the cost minimization problem of the principal, the objective of which is to design the cheapest contract inducing a target effort. Our results confirm that a one-step bonus contract should be used, which means that a bonus contract is most efficient for the principal in terms of incentive provision. A new condition to justify the first-order approach in our model was also provided.
Keywords: Risk managers, Risk-reducing effort, Bonus contract |
This research was supported by the BK21Plus Program (Future-oriented innovative brain raising type, 21B20130000013) funded by the Ministry of Education (MOE, Korea) and National Research Foundation of Korea (NRF).
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