Home About us Contact
|
Home About us Contact | ||
|
|
||
Asymmetric Information (asymmetric + information)
Selected AbstractsTHE INVESTMENT GAME WITH ASYMMETRIC INFORMATIONMETROECONOMICA, Issue 1 2006Giorgio Coricelli ABSTRACT We analyze the effects of introducing asymmetric information and expectations in the investment game (Berg et al., Games and Economic Behavior, 1995, 10, 122,42). In our experiment, only the trustee knows the size of the surplus. Subjects' expectations about each other's behavior are also elicited. Our results show that average payback levels increase with the average amount sent. Asymmetric information does not reduce the amounts sent and returned, as compared with previous experimental studies. The first movers' choices increase with their expectations about the second movers' payback, whose choices depend in turn on the difference between expected and actual amounts received. [source] Strategic Decisions of New Technology Adoption under Asymmetric Information: A Game-Theoretic Model*DECISION SCIENCES, Issue 4 2003Kevin Zhu ABSTRACT In this paper we explore strategic decision making in new technology adoption by using economic analysis. We show how asymmetric information affects firms' decisions to adopt the technology. We do so in a two-stage game-theoretic model where the first-stage investment results in the acquisition of a new technology that, in the second stage, may give the firm a competitive advantage in the product market. We compare two information structures under which two competing firms have asymmetric information about the future performance (i.e., postadoption costs) of the new technology. We find that equilibrium strategies under asymmetric information are quite different from those under symmetric information. Information asymmetry leads to different incentives and strategic behaviors in the technology adoption game. In contrast to conventional wisdom, our model shows that market uncertainty may actually induce firms to act more aggressively under certain conditions. We also show that having better information is not always a good thing. These results illustrate a key departure from established decision theory. [source] Asymmetric Information and Dividend PolicyFINANCIAL MANAGEMENT, Issue 4 2008Kai Li We examine how informational asymmetries affect firms' dividend policies. We find that firms that are more subject to information asymmetry are less likely to pay, initiate, or increase dividends, and disburse smaller amounts. We show that our main results are not driven by our sample and that our results persist after accounting for the changing composition of payout over the sample period, the increasing importance of institutional shareholdings, and catering incentives. We conclude that there is a negative relation between asymmetric information and dividend policy. Our results do not support the signaling theory of dividends. [source] Dividend Initiations and Asymmetric Information: A Hazard ModelFINANCIAL REVIEW, Issue 3 2003Sanjay Deshmukh G35 Abstract This paper investigates the dynamics of dividend policy using a hazard model. Specifically, the paper examines dividend initiations for a sample of firms that went public between 1990 and 1997. These dividend initiations are examined in the context of an alternative explanation based on the pecking order theory. The results indicate that the probability or the hazard rate of a dividend initiation is negatively related to both the level of asymmetric information and growth opportunities and positively related to the level of cash flow. These results are consistent with a pecking order explanation but inconsistent with a signaling explanation. [source] Equilibrium Partner Switching in a Bargaining Model With Asymmetric InformationINTERNATIONAL ECONOMIC REVIEW, Issue 4 2000Gianni De Fraja We study a model in which the seller of an indivisible object faces two potential buyers and makes an offer to either of them in each period. We find that the seller's ability to extract surplus from them depends crucially on the value of the cost of switching from one buyer to the next. If the seller is pessimistic about the buyers' valuations and there is a switching cost, however small, then the market is a natural bilateral monopoly; the second buyer is never called on. If the switching cost is zero, or if the seller is optimistic, then switching, and possibly recall of the original buyer, may occur. [source] Emerging Market Efficiencies: New Zealand's Maturation Experience in the Presence of Non-Linearity, Thin Trading and Asymmetric InformationINTERNATIONAL REVIEW OF FINANCE, Issue 1-2 2007CHARLES RAYHORN ABSTRACT This paper examines the efficiency of New Zealand's stock market by assessing the prevalence of thin trading, non-linearity and information asymmetry. We find that the efficiency of this emerging market has been enhanced over time due to regulatory changes and the transition of the New Zealand economy to a free market orientation. During the 1970s and 1980s, the stock market appears to have been inefficient with thin trading and non-linearity as leading causative agents. Our evaluation of non-linear models, adjusted for thin trading effects, however, strongly suggests that the New Zealand stock market has become more efficient since 1990. [source] Market-Share Contracts with Asymmetric InformationJOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, Issue 2 2009Adrian Majumdar In this paper, a dominant firm and competitive fringe supply substitute goods to a retailer who has private information about demand. We show that it is profitable for the dominant firm to condition payment on how much the retailer buys from the fringe (market-share contracts). The dominant firm thereby creates countervailing incentives for the retailer and, in some cases, is able to obtain the full-information outcome (unlike in standard screening models, where the agent earns an information rent in the high-demand state and output is distorted in the low-demand state). Our results have implications for fidelity rebates, all-units discounts, and competition policy. Although some crowding out of the fringe may occur when demand is low, we show that market-share contracts need not be harmful for welfare. [source] Asymmetric Information, Bargaining, and International MergersJOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, Issue 4 2001Satya P. Das The formation of international mergers is examined in the presence of two kinds of asymmetric information, one when a local firm has private information on market size and the other when a foreign firm has private information on its technology. In each situation, parametric configurations are identified under which a merger offer may or may not be made. It also examines the kind of offer and the probability of its acceptance. The likelihood of a merger beingformed is also related to the basic market size, demand uncertainty, and cost uncertainty. Welfare effects of tax/subsidy policies by the host country are also analyzed. [source] Ex Post Voluntary Disclosure Strategies for Insiders,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2003Carolyn B. Levine Abstract Asymmetric information between corporate insiders and other market participants can lead to large bid-ask spreads or even a collapse of trade in financial markets. In this paper, we discuss how voluntary disclosure by insiders can remedy this problem. When insiders make disclosure decisions after they become informed, other market participants update their prior beliefs on the basis of both the information disclosed and the information not disclosed. Insiders then give up some or all of their information advantage to weakly increase their profits. These results do not rely on ex ante commitments on the part of the insiders. [source] Asymmetric information, price discovery and macroeconomic announcements in FX market: do top trading banks know more?INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2010Kate Phylaktis Abstract This study investigates information asymmetry in the foreign exchange market by testing the hypothesis that top trading banks possess superior information on the macroeconomy because they process greater order flow, which, according to the micro-structure literature, helps them aggregate the dispersed information and feel the general movements of the economy. Examining the information share of the banks in the Reuters EFX system using indicative GBP,$US data over 5 years, we find that the top 10 banks, out of 100 quoting banks in the market, have a monthly average share of over 70% of total market information, and around 80% during some US macroannouncements. These results suggest the possibility of private information over public news in the foreign exchange market. Copyright © 2009 John Wiley & Sons, Ltd. [source] THE INVESTMENT GAME WITH ASYMMETRIC INFORMATIONMETROECONOMICA, Issue 1 2006Giorgio Coricelli ABSTRACT We analyze the effects of introducing asymmetric information and expectations in the investment game (Berg et al., Games and Economic Behavior, 1995, 10, 122,42). In our experiment, only the trustee knows the size of the surplus. Subjects' expectations about each other's behavior are also elicited. Our results show that average payback levels increase with the average amount sent. Asymmetric information does not reduce the amounts sent and returned, as compared with previous experimental studies. The first movers' choices increase with their expectations about the second movers' payback, whose choices depend in turn on the difference between expected and actual amounts received. [source] Asymmetric information and credit quality: Evidence from synthetic fixed-rate financingTHE JOURNAL OF FUTURES MARKETS, Issue 6 2006Betty J. Simkins In this article the usage of synthetic fixed-rate financing (SFRF) with interest rate swaps (i.e., borrowing short-term and using swaps to hedge interest rate risk, instead of selecting conventional fixed-rate financing) by Fortune 500 and S&P 500 nonfinancial firms is examined over the period 1991 through 1995. Credit ratings, debt issuance, and debt maturities of these firms are monitored through 1999. Strong evidence is found supporting the asymmetric information theory of swap usage as described by S. Titman (1992), even after controlling for industry, credit quality, size effects, and the simultaneity of the capital structure and the interest rate swap usage decision. Consistent with theoretical predictions, SFRF firms are more likely to undergo credit quality upgrades. When limiting the sample to firms where asymmetric information costs are potentially the greatest, the results are even stronger. These findings are important because they document that swaps serve a highly valuable service for firms subject to information asymmetries. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:595,626, 2006 [source] Asymmetric information in insurance: general testable implicationsTHE RAND JOURNAL OF ECONOMICS, Issue 4 2006Pierre-André Chiappori Several recent articles on empirical contract theory and insurance have tested for a positive correlation between coverage and ex post risk, as predicted by standard models of pure adverse selection or pure moral hazard. We show here that the positive correlationproperty can be extended to general setups: competitive insurance markets and cases where risk aversion is public. We test our results on a French dataset. Our tests confirm that the estimated correlation is positive; they also suggest the presence of market power. [source] Strategic Decisions of New Technology Adoption under Asymmetric Information: A Game-Theoretic Model*DECISION SCIENCES, Issue 4 2003Kevin Zhu ABSTRACT In this paper we explore strategic decision making in new technology adoption by using economic analysis. We show how asymmetric information affects firms' decisions to adopt the technology. We do so in a two-stage game-theoretic model where the first-stage investment results in the acquisition of a new technology that, in the second stage, may give the firm a competitive advantage in the product market. We compare two information structures under which two competing firms have asymmetric information about the future performance (i.e., postadoption costs) of the new technology. We find that equilibrium strategies under asymmetric information are quite different from those under symmetric information. Information asymmetry leads to different incentives and strategic behaviors in the technology adoption game. In contrast to conventional wisdom, our model shows that market uncertainty may actually induce firms to act more aggressively under certain conditions. We also show that having better information is not always a good thing. These results illustrate a key departure from established decision theory. [source] Underwriting and Calls of Convertible Bonds,DECISION SCIENCES, Issue 1 2000Arnold R. Cowan We model convertible bond calls under asymmetric information where, unlike Harris and Raviv (1985), we consider a nonzero call price and a call notice period. In the model, the use of underwriters conveys negative information. Consequently, the stock price decline is greater for underwritten calls than for nonunderwritten calls. Furthermore, underwritten calls are made earlier and when the conversion option is less deep in the money. Underwriting commissions and the stock price decline associated with a call are negatively related to the extent that the conversion option is in the money before the call. Empirical evidence in this paper and Singh, Cowan, and Nayar (1991) are consistent with the model's predictions. [source] SHOULD YOU ARM YOUR FUTURE VICTIMS?ECONOMICS & POLITICS, Issue 3 2006JEAN-PAUL AZAM A model is presented where the ruler may arm the producers, in order to convince them that he will not expropriate them ex post. This sets an upper limit on the tax rate, not higher than their probability of losing their income, should a war occur. The relevance of this analysis is illustrated by discussing various case studies, involving post-conflict situations. Some variants of the model are presented for highlighting some implementation problems, related to asymmetric information or to positive initial endowments of weapons or non-produced wealth, which may lead to war in equilibrium. [source] Some Lessons from Transaction-Cost Politics for Less-Developed CountriesECONOMICS & POLITICS, Issue 2 2003Avinash Dixit Transaction-cost politics views economic policy-making as a political process constrained by asymmetric information and limited commitment possibilities. This paper examines some implications of this perspective for less-developed countries (LDCs) considering policy reform. It emphasizes that success requires reform of the rules and institutions which govern the strategic interaction of the participants in the political game, and that reforms must cope with the special interests and asymmetric information which already exist. In this light, it examines some broad issues of the design of constitutions and institutions (definition and enforcement of property rights, control of inflation, and of government expenditures, federalism, and redistribution), as well as some specific issue of the design of organizations and incentives (problems posed by the interaction of multiple tasks and multiple interests, and their interaction with the limitations on auditing and administration that exists in many LDCs). [source] Income Insurance in European AgricultureEUROCHOICES, Issue 1 2003Miranda P. M. Meuwissen Summary Income Insurance in EuropeanAgriculture The agricultural risk environment in Europe is changing, for example because of WTO agreements and governments increasingly withdrawing from disaster assistance in case of catastrophic events. In this context, some form of income insurance may be a useful risk management tool for farmers. Insuring farmers' incomes, however, is rather problematical for reasons of asymmetric information and high correlation of the risks amongst the would-be insured, for example risks due to price fluctuations, floods, droughts and livestock epidemics. It is concluded that the most aggregated forms of income insurance that are likely to be feasible include revenue insurance for field crops, especially if there are relevant futures markets and area yield data, and business interruption insurance for livestock commodities. In Europe, only a few such schemes currendy exist; some are purely private, others are subsidised. A somewhat larger involvement of the public sector, for example through public-private partnerships for reinsurance, could extend the availability of income insurance schemes throughout Europe. Governments, however, should tread warily in entering the field of subsidised agricultural insurance, which experience shows is beset with pitfalls. Pilot tests are useful in establishing the attractiveness of income insurance schemes and other income stabilising tools for the various parties involved. Le contexte du risque agncoie est en train de changer en Europe, en raison notamment des accords de 'OMC et d'un retrait croissant des gouvernements de , assistance sinistre en cas de catastrophes. Dans ce contexte, une certaine forme ? assurance sur le revenu peut être un outil utile de gestion des risques pour les agriculteurs. Assurer les revenus des agriculteurs, cependant, est une activitécute; assez délicate pour des raisons ? information asymétrique et de forte corrélation des risques chez les assurés potentiels, avec , exemple des risques dus aux fluctuations de prix, aux inondations, aux sécheresses et aux épidémies animales. On en conclut que les formes ? assurance revenu les plus complètes et les plus plausibles comprennent ľ assurance-revenu pour les récoltes, notamment s'il existe des marchés a terme appropriés et des données sur le rendement par région, et ,,assurance pour cessation ?'activite pour les produits de ,élevage;. En Europe, seuls quelques projets similaires existent; certains sont purement privés, ? autres sont subventionés. Une implication un peu plus importante du secteur public, par exemple par le biais de partenariats public-privé pour la réassurance, permettrait ?élargir la disponibilité des plans ? assurance-revenu dans toute , Europe. Les gouvernements, cependant, doivent aborder avec prudence le domaine de , assurance agricole subventionée qui, , expérience le montre, est semée ? embûches. Des expériences pilotes sont utiles pour définir , intérêt des projets ? assurance-revenu et des autres outils permettant de stabiliser les revenus pour les différentes parties impliquées. In Europa ändern sich zur Zeit die _ Rahmenbedingungen für die Landwirtschaft hinsichtlich des Risikos. Dies liegt zum Beispiel an WTO-Abkommen und Regierungen, die ihre Hilfsleistungen im Schadensfall zunehmend verweigern. In diesem Zusammenhang könnte irgendeine Form von Einkommenversicherung im Bereich des Risikomanagements für Landwirte von Nutzen sein. Eine solche Versicherung wirft jedoch Probleme auf, da asymmetrische Information und eine hohe Risikokorrelation bei den potenziellen Versicherungsnehmem vorliegen, wie beispielsweise Risiken, die auf Preisschwankungen, Flut- und Dürrekatastrophen oder Tierseuchen beruhen. Hieraus wird gefolgert, dass zu den umfassendsten realisierbaren Formen von Einkommenversicherungen die Erlösversicherung im Ackerbau - insbesondere bei Vorliegen von relevanten Warenterminmärkten und Flächenertragsdaten - und die Betriebsausfallversicherung für tieriscbe Erzeugnisse gehören. In Europa sind zur Zeit nur wenige solcher Programme vorhanden; bei einigen handelt es sich um ausschließlich private Versicherungen, andere werden subventioniert. Würde der öffentliche Sektor stärker mit eingebunden, zum Beispiel mit Hilfe von öffendich-privaten Rückversicherungsgesellschaften, könnten in ganz Europa weitere Programme zur Einkommenversicherung zur Verfügung gestellt werden. Für die Regierungen jedoch ist beim Etablieren subventionierter Versicherungen im Bereich der Landwirtschaft größte Vorsicht geboten, da dies erfahrungs-gemäß Schwierigkeiten aufwirft. Zunächst sollten Pilotprojekte durchgeführt werden, mit deren Hilfe die Attraktivität von Programmen zur Einkommen-aversicherung und von weiteren einkommensstabilisierendenMaßnahmen fÜr die verschiedenen beteiligten Parteien sicher gestellt wird. [source] Asymmetric Information and Dividend PolicyFINANCIAL MANAGEMENT, Issue 4 2008Kai Li We examine how informational asymmetries affect firms' dividend policies. We find that firms that are more subject to information asymmetry are less likely to pay, initiate, or increase dividends, and disburse smaller amounts. We show that our main results are not driven by our sample and that our results persist after accounting for the changing composition of payout over the sample period, the increasing importance of institutional shareholdings, and catering incentives. We conclude that there is a negative relation between asymmetric information and dividend policy. Our results do not support the signaling theory of dividends. [source] Moving from Private to Public Ownership: Selling Out to Public Firms versus Initial Public OfferingsFINANCIAL MANAGEMENT, Issue 1 2008Annette B. Poulsen We study two alternative means to move assets from private to public ownership: through the acquisition of private companies by firms that are public (sellouts) or through initial public share offerings (IPOs). We consider firm-specific characteristics for 1,074 IPO and 735 sellout firms to identify differences in growth, capital constraints, and asymmetric information between the two types of transactions. Our results suggest that firms move to public ownership through an IPO when they have greater growth opportunities and face more capital constraints. We provide a better understanding of the firm-specific characteristics that lead firms to go public. [source] Impact of Visibility and Investment Advisor Credibility on the Valuation Effects of High-Tech Cross-Border AcquisitionsFINANCIAL MANAGEMENT, Issue 1 2007Georgina Benou Since foreign high-tech firms exhibit a high level of asymmetric information, there is much investor skepticism surrounding the potential benefits to US firms that acquire them. However, the investor perception may be more favorable when the acquisitions involve more visible targets and advice from investment banks with a strong reputation. Based on a sample of 503 high-tech cross-border acquisitions, bidding-firm shareholders experience positive but statistically insignificant valuation effects overall. However, bidder firms experience positive and significant valuation effects when the foreign high-tech target receives a high level of media attention and when the acquisition is endorsed by a top-tier investment bank. Visibility and credibility enhance the perceived benefits of acquiring foreign targets that have substantial intangible assets and a high level of asymmetric information. [source] Dividend Initiations and Asymmetric Information: A Hazard ModelFINANCIAL REVIEW, Issue 3 2003Sanjay Deshmukh G35 Abstract This paper investigates the dynamics of dividend policy using a hazard model. Specifically, the paper examines dividend initiations for a sample of firms that went public between 1990 and 1997. These dividend initiations are examined in the context of an alternative explanation based on the pecking order theory. The results indicate that the probability or the hazard rate of a dividend initiation is negatively related to both the level of asymmetric information and growth opportunities and positively related to the level of cash flow. These results are consistent with a pecking order explanation but inconsistent with a signaling explanation. [source] An Intraday Examination of the Components of the Bid,Ask SpreadFINANCIAL REVIEW, Issue 4 2002Thomas H. McInish Using transactions data for a sample of NYSE stocks, we decompose the bid,ask spread (BAS) into order,processing (OP) and asymmetric information (AI) components using the techniques of George, Kaul, and Nimalendran (1991) and Madhavan, Richardson, and Roomans (1997). McInish and Wood (1992) demonstrate that the intraday behavior of BASs can be explained by variables measuring activity, competition, risk, and information. We investigate whether these variables explain the behavior of the OP and AI components of the spread over the trading day. We conclude that, on balance, the variables that determine the aggregate BAS also determine its intraday components. [source] Healthy, wealthy and insured?HEALTH ECONOMICS, Issue 3 2008The role of self-assessed health in the demand for private health insurance Abstract Both adverse selection and moral hazard models predict a positive relationship between risk and insurance; yet the most common finding in empirical studies of insurance is that of a negative correlation. In this paper, we investigate the relationship between ex ante risk and private health insurance using Australian data. The institutional features of the Australian system make the effects of asymmetric information more readily identifiable than in most other countries. We find a strong positive association between self-assessed health and private health cover. By applying the Lokshin and Ravallion (J. Econ. Behav. Organ 2005; 56:141,172) technique we identify the factors responsible for this result and recover the conventional negative relationship predicted by adverse selection when using more objective indicators of health. Our results also provide support for the hypothesis that self-assessed health captures individual traits not necessarily related to risk of health expenditures, in particular, attitudes towards risk. Specifically, we find that those persons who engage in risk-taking behaviours are simultaneously less likely to be in good health and less likely to buy insurance. Copyright © 2007 John Wiley & Sons, Ltd. [source] The perceived credibility of quality labels: a scale validation with refinementINTERNATIONAL JOURNAL OF CONSUMER STUDIES, Issue 5 2008Salim Moussa Abstract In this paper, we present quality labels as signals that reduce problems that arise under asymmetric information. We propose to closely scrutinize the concept of signal credibility, which is a key determinant of signalling effectiveness. In order to assess the perceived credibility of a quality label, we offer a revisited version of a scale originally proposed by Larceneux. The data used in this paper involve three different labels and were collected using self-report surveys administered to 602 respondents. Based on findings from a variety of reliability and validity tests, the scale demonstrates good psychometric properties. Both theoretical and managerial implications are discussed, along with limitations and future research directions. [source] Principal-Agent Problems in Humanitarian Intervention: Moral Hazards, Adverse Selection, and the Commitment DilemmaINTERNATIONAL STUDIES QUARTERLY, Issue 4 2009Robert W. Rauchhaus A number of recent studies have concluded that humanitarian intervention can produce unintended consequences that reduce or completely undermine conflict management efforts. Some analysts have argued that the incentive structure produced by third parties is a form of moral hazard. This paper evaluates the utility of moral hazard theory and a second type of principal-agent problem known as adverse selection. Whereas moral hazards occur when an insured party has an opportunity to take hidden action once a contract is in effect, adverse selection is the result of asymmetric information prior to entering into a contract. Failing to distinguish between these two types of principal-agent problems may lead to policy advice that is irrelevant or potentially harmful. Along with introducing the concept of adverse selection to the debate on humanitarian intervention, this study identifies a commitment dilemma that explains why third parties operating in weakly institutionalized environments may be unable to punish groups that take advantage of intervention. [source] Use of Compliance Rewards in Agri-environmental SchemesJOURNAL OF AGRICULTURAL ECONOMICS, Issue 3 2009Yuki Yano Q12; Q20; Q28; Q57 Abstract Ensuring that farmers comply with the terms of agri-environmental schemes is an important issue. This paper explores the use of a ,compliance,reward' approach under heterogeneous net compliance costs with respect to cost-share working lands programmes such as the Environmental Quality Incentives Program (EQIP) in the United States. Specifically, we examine the use of a reward under asymmetric information and output price uncertainty. We examine two possible sources of financing under the assumption of budget neutrality: (i) funds obtained by reducing monitoring effort; and (ii) money saved by reducing the number of farmers enrolled. We discuss the advantages and disadvantages of each source of funding and analyse these numerically for both risk-neutral and risk-averse farmers. We also examine the trade-off between increased expenditure on monitoring effort and compliance rewards when additional budgetary resources are available. We show that under certain conditions a compliance reward can increase compliance rates. For risk-averse farmers, however, conditions that ensure a positive outcome become more restrictive. [source] Machiavellianism and Economic OpportunismJOURNAL OF APPLIED SOCIAL PSYCHOLOGY, Issue 6 2007Maria Sakalaki This study explores the relationship between 2 defecting strategies based on the manipulation of information; namely, Machiavellianism and economic opportunism. There are 3 main hypotheses that were confirmed in questionnaire investigations among samples of 191 and 113 university students in Athens. Machiavellianism was positively correlated with economic opportunism, shown by a statistically highly significant positive correlation between scores on scales measuring these 2 concepts. In situations of asymmetric information where they held the advantage, high Machs adopted more opportunistic strategies, showing the greatest inclination to maximize their own profit. High Machs showed less trust in potential economic partners, whom they regarded as untrustworthy maximizers. [source] WHAT DO ECONOMISTS TELL US ABOUT VENTURE CAPITAL CONTRACTS?JOURNAL OF ECONOMIC SURVEYS, Issue 1 2007Tereza Tykvová Abstract Venture capital markets are characterized by multiple incentive problems and asymmetric information. Entrepreneurs and venture capitalists enter into contracts that influence their behaviour and mitigate the agency costs. In particular, they select an appropriate kind and structure of financing and specify the rights as well as the duties of both parties. The typical features of venture capital investments are an intensive screening and evaluation process, active involvement of venture capitalists in their portfolio companies, staging of capital infusions, use of special financing instruments such as convertible debt or convertible preferred stock, syndication among venture capitalists or limited investment horizon. [source] Risk-Taking Incentives: A Review of the LiteratureJOURNAL OF ECONOMIC SURVEYS, Issue 1 2005Richard Windram Abstract., Incentive structures affect people's decisions. But what are the implications of the resulting choices that people make for the level of risk within the economy? This paper reviews the literature in this area and attempts to draw out practical work that can be taken forward in assessing risk-taking incentives in the UK. Understanding the principal,agent problem is key to explaining many of the incentive structures that emerge. The paper provides an exposition of this before considering its implications in the managerial and financial markets. Within both these markets the paper considers how incentive structures alter principals' behaviour, before considering possible solutions to the common problem of asymmetric information. The paper concludes that the implications for risk-taking are unclear, as incentive structures can lead to both increased and decreased risk-taking. It therefore makes a number of suggestions for future research into the effect of incentive structures in existence in the UK. [source] | ||||||||||||||||||||||||||||||||||