The allocation of risk and the distribution of profits

Abstract

This dissertation is concerned with the efficient allocation of risk bearing, and the corresponding efficient distribution of profits, in economies where individuals are differentiated by their preferences towards risk. In addition to the decision of how much risk to bear each individual is allowed to choose between the occupations of management and labor. Thus the manager, or agent, is endogenized, along with the principal, or worker. In a competitive environment rents accrue to all but the marginal individual, and the marginal individual in the models presented in the dissertation is the individual who is indifferent between the occupations of management and labor.