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Equilibrium Executive Compensation

hal.structure.identifierDauphine Recherches en Management [DRM]
dc.contributor.authorChemla, Gilles
dc.contributor.authorRivera, Alejandro
dc.contributor.authorShi, Liyan
dc.date.accessioned2021-09-13T14:13:50Z
dc.date.available2021-09-13T14:13:50Z
dc.date.issued2020
dc.identifier.urihttps://basepub.dauphine.psl.eu/handle/123456789/21763
dc.language.isoenen
dc.subjectmanagersen
dc.subjectexternalitiesen
dc.subjectdynamic optimal contractsen
dc.subjectshort-termismen
dc.subjectturnoveren
dc.subject.ddc658.4en
dc.subject.classificationjelG.G3.G30en
dc.subject.classificationjelJ.J3.J33en
dc.subject.classificationjelD.D8.D86en
dc.titleEquilibrium Executive Compensationen
dc.typeCommunication / Conférence
dc.description.abstractenWe examine a general equilibrium dynamic economy in which each firm hires a manager who privately observes cash flows and can fire him after poor performance, generating costs to both parties. The contract is terminated when the manager's continuation value reaches his compensation at another firm net of his search cost. The unique competitive equilibrium features overcompensation, short-termism, and excessive executive tenure. When a firm increases executive pay, it increases the cost to other firms to retain their managers, in turn forcing them to raise and front-load their compensation packages. Inefficiencies decrease with the firm's discount rate and increase with the manager's discount rate, the termination cost to the firm, and the proxy for moral hazard. An increase in the search cost to the manager increases social welfare. In the competitive equilibrium, the private optimal contract can be implemented via inside equity relinquished by the manager upon moving to a new firm. Optimal corporate and income tax schedules can generate the social planner's allocation.en
dc.subject.ddclabelDirection d'entrepriseen
dc.relation.conftitleVirtual Finance Theory Seminaren
dc.relation.confdate2020-11
dc.relation.confcityParis / Onlineen
dc.relation.confcountryFranceen
dc.relation.forthcomingnonen
dc.description.ssrncandidatenon
dc.description.halcandidateouien
dc.description.readershiprechercheen
dc.description.audienceInternationalen
dc.relation.Isversionofjnlpeerreviewednonen
dc.date.updated2021-09-13T10:26:43Z
dc.subject.classificationjelHALG - Financial Economics::G3 - Corporate Finance and Governance::G30 - Generalen
dc.subject.classificationjelHALJ - Labor and Demographic Economics::J3 - Wages, Compensation, and Labor Costs::J33 - Compensation Packages; Payment Methodsen
dc.subject.classificationjelHALD - Microeconomics::D8 - Information, Knowledge, and Uncertainty::D86 - Economics of Contract: Theoryen
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