Working Paper: NBER ID: w11960
Authors: Eric Hilt
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.
Keywords: risk; incentives; whaling industry; contracts; Civil War
JEL Codes: N5; L2; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased risk from Confederate cruisers (Y50) | decreased shares of output paid to sailors on Atlantic voyages (D33) |
| increased risk from Confederate cruisers (Y50) | increased fixed component of compensation (advances) (J33) |
| decreased shares of output paid to sailors on Atlantic voyages (D33) | increased fixed component of compensation (advances) (J33) |
| less risk-averse sailors and merchants self-selected into riskier voyages during the war (N43) | adaptation of compensation contracts to changing risk environment (J33) |