The Principal-Agent Models about Risk Seeking Players

The principal-agent model, which is used to study the incentive problem in corporate and in western countries, is generally under the assumptions that principal being risk neutral and agent being risk aversion. By analyzing, the organization´s risk attitude, which is jointly determined by decision maker´s risk attitude, competition situation of the industry and external environment, is likely to be risk neutral and risk seeking in China. So, when studying the incentive problem between organizations in China, the existing assumptions should be viewed as enormously restrictive and the conclusion should be not valid everywhere. Two models, one that is the principal being risk seeking and agent being risk neutral, the other that is principal being risk seeking and agent being risk seeking ,will be structured. In order to compare with risk aversion, measure of absolute risk seeking and the gain associated to the risk are defined. The optimal incentive contract declare that the agent will share either all or no risk; boundary conditions depend on the value of parameters which are risk, measure of absolute risk seeking and the cost of effort.