FIGURE 15.4 Sorting Managers with Linear Share Contracts More risk averse Is В. 96 70 Less risk averse E •D Commercial construction loan officer Venture capital personal banker A 0.1% +0.2% +0.3% +0.4% +$12(000) ±$24(000) Profit-sharing rate Base salary (thousands of dollars)

FIGURE 15.4 Sorting Managers with Linear Share Contracts More risk averse Is В. 96 70 Less risk averse E •D Commercial construction loan officer Venture capital personal banker A 0.1% +0.2% +0.3% +0.4% +$12(000) ±$24(000) Profit-sharing rate Base salary (thousands of dollars)

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter10: Valuing Early-stage Ventures

Section: Chapter Questions

Problem 2cM

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Question

Explain how the optimal incentives contract would differ if the less risk-averse bank officer (Dashing in Figure) had generated the smaller expected profit (i.e., the lower hill-shaped curve).

FIGURE 15.4 Sorting Managers with Linear Share Contracts
More risk averse
Is
В.
96
70
Less risk averse
E
•D
Commercial
construction
loan officer
Venture capital
personal
banker
A
0.1%
+0.2%
+0.3%
+0.4%
+$12(000)
±$24(000)
Profit-sharing rate
Base salary (thousands of dollars)

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