Agency Theory Flashcards
1
Q
Risk Aversion
A
a risk averse persons prefers a CERTAIN income C compared to uncertain incomes generating same expected income C.
If there are 2 projects with uncertain incomes but generating same expected income, a risk averse person prefers project with less uncertain income.
2
Q
Risk-neutral
A
person is indifferent between a certain income C and uncertain incomes generating same expected income C.
3
Q
Other ways to reduce moral hazard problems beside incentive schemes
A
Increase monitoring
Bonding
Monitoring by markets
