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<p>We study the classic agency model when the suitable ordering of risky prospects is better represented by higher- rather than first-order risk changes. We derive conditions on preferences under which the principal would want a greater effort level provided by the agent than the one provided under the second-best sharing rule. Our characterization attempts to bridge the gap between current developments in the economic theory of risk and uncertainty and the classical agency model. Finally, we apply our findings to CARA, CRRA and HARA preferences.</p>

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Agency theory and higher-order risk changes

  • 期刊论文

  • 发表日期：

    2026年4月7日

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  • Claudio A. Bonilla,
  • Hervé Roche,
  • Marcos Vergara

摘要

We study the classic agency model when the suitable ordering of risky prospects is better represented by higher- rather than first-order risk changes. We derive conditions on preferences under which the principal would want a greater effort level provided by the agent than the one provided under the second-best sharing rule. Our characterization attempts to bridge the gap between current developments in the economic theory of risk and uncertainty and the classical agency model. Finally, we apply our findings to CARA, CRRA and HARA preferences.