scholarly journals Limited Liability, Strategic Default and Bargaining Power

2020 ◽  
Author(s):  
Mirco Balatti ◽  
Carolina Lopez-Quiles
Keyword(s):  
Bargaining Power ◽  
Limited Liability ◽  
Strategic Default

Risk, Incentives, and Contracts: Partnerships in Rio de Janeiro, 1870–1891

2010 ◽  
Vol 70 (3) ◽  
pp. 686-715 ◽  
Author(s):  
Ran Abramitzky ◽  
Zephyr Frank ◽  
Aprajit Mahajan
Keyword(s):  
Nineteenth Century ◽  
Bargaining Power ◽  
Rio De Janeiro ◽  
Limited Liability ◽  
Late Nineteenth Century ◽  
Data Set ◽  
Individual Level ◽  
Level Data ◽  
Late Nineteenth ◽  
Relative Bargaining Power

We construct an individual-level data set of partnership contracts in late-nineteenth-century Rio de Janeiro to study the determinants of contract terms. Partners with limited liability contributed more capital and received lower draws for private expenses and lower profit shares than their unlimited partners. Unlimited partners in turn received higher-powered incentives when they contracted with limited partners than when they contracted with unlimited partners. A reform that changed the relative bargaining power further improved the terms of unlimited partners in limited firms. These findings highlight the roles of risk, incentives, and bargaining power in shaping contracts.

Contract Bargaining with a Risk-Averse Agent

2013 ◽  
Vol 13 (1) ◽  
pp. 285-301 ◽  
Author(s):  
Sanxi Li ◽  
Hao Xiao ◽  
Dongmin Yao
Keyword(s):  
Utility Function ◽  
Bargaining Power ◽  
Limited Liability ◽  
Bargaining Model ◽  
Risk Averse ◽  
Certainty Equivalents ◽  
The Social ◽  
Risk Neutral ◽  
Power Of Incentives ◽  
High Effort

AbstractThis article is the first to study a bargaining model in a moral hazard framework where the principal is risk neutral and the agent is risk averse. We show that the power of incentives increases with the agent’s bargaining power if the contracts induce a high effort. However, under reasonable assumptions about the agent’s utility function, the contracts induce a high effort less often as the agent’s bargaining power increases. As for the social welfare, we are surprised to find that a utilitarian, who cares about the sum of the two parties’ certainty equivalents, is worse off as the agent’s bargaining power increases. These results are in sharp contrast to the literature, which features risk-neutral agents protected by limited liability.

scholarly journals Contractual Structure and Wealth Accumulation

2002 ◽  
Vol 92 (4) ◽  
pp. 818-849 ◽  
Author(s):  
Dilip Mookherjee ◽  
Debraj Ray
Keyword(s):  
Moral Hazard ◽  
Bargaining Power ◽  
Credit Constraints ◽  
Limited Liability ◽  
Poverty Traps ◽  
Wealth Accumulation ◽  
Financial Contracts ◽  
Long Run ◽  
Short Period

Can historical wealth distributions affect long-run output and inequality despite “rational” saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and “history” does not matter eventually.

Limited Liability Leverage (L³): A New Measure of Leverage

CFA Digest ◽  
2011 ◽  
Vol 41 (2) ◽  
pp. 93-94
Author(s):  
Natalie Schoon
Keyword(s):  
Limited Liability
Sign in / Sign up

Export Citation Format

Share Document