The Negative Trade-Off between Risk and Incentives: Evidence from the American Whaling Industry

39 Pages Posted: 24 Jan 2006 Last revised: 7 Mar 2022

See all articles by Eric Hilt

Eric Hilt

National Bureau of Economic Research (NBER); Wellesley College

Date Written: January 2006

Abstract

This paper analyzes the trade-off between risk and incentives in the share contracts of the American whaling industry. Using a newly-collected panel of 5,378 individuals who sailed on whaling voyages from 1855-68, the response of sailors' compensation to an increase in risk is estimated. The risks used to identify this response resulted from the commerce-raiding naval vessels of the Confederacy during the Civil War. As the Confederate cruisers sailed primarily in the Atlantic, and therefore posed far less of a threat to whaling voyages to other oceans, a quasi-experimental approach, focussing on the differences between Atlantic voyages compared to others, is implemented. The results support the existence of a negative trade-off between risk and incentives in the industry's contracts. Moreover, evidence is found of selection among less risk-averse sailors and merchants into riskier voyages during the war.

Suggested Citation

Hilt, Eric, The Negative Trade-Off between Risk and Incentives: Evidence from the American Whaling Industry (January 2006). NBER Working Paper No. w11960, Available at SSRN: https://ssrn.com/abstract=877465

Eric Hilt (Contact Author)

National Bureau of Economic Research (NBER)

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Wellesley College ( email )

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