The Purchase of Insurance by a Risk-Neutral Firm for a Risk-Averse Agent

Authors

  • Mark E. Parry University of Virginia
  • Arthur E. Parry The Wyatt Company, Dallas, Texas

DOI:

https://doi.org/10.1016/1057-0810(91)90033-U

Abstract

In the purchase of insurance by a risk-neutral firm for a risk-averse prospective employee, the firm must offer the prospect a compensation package consisting of a fee, or salary, and an insurance policy. In designing this policy, the firm is constrained by the utility function of the prospect: the firm seeks the least-cost compensation package that will induce the prospect to accept the firm’s offer of employment. Because the risk aversion of the prospect constrains the choices of the firm, this problem is referred to as that of an employee-constrained firm (ECF). The specific ECF situation discussed here concerns a firm that wishes to hire an outside

Published

1991-12-30

How to Cite

Parry, M. E., & Parry , A. E. (1991). The Purchase of Insurance by a Risk-Neutral Firm for a Risk-Averse Agent. Financial Services Review, 1(2), 177–178. https://doi.org/10.1016/1057-0810(91)90033-U

Issue

Vol. 1 No. 2 (1991): Financial Services Review

Section

Abstracts of Articles on Individual Financial Management

License

Copyright (c) 1991 JAI Press Inc.

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.