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Explaining the structure of CEO incentive pay with decreasing relative risk aversion

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  • Chaigneau, Pierre
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    Abstract

    It is established that the standard principal-agent model cannot explain the structure of commonly used CEO compensation contracts if preferences with constant relative risk aversion are postulated. However, we demonstrate that this model has potentially a high explanatory power with preferences with decreasing relative risk aversion, in the sense that a typical CEO contract is approximately optimal for plausible preference parameters.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 67 (2013)
    Issue (Month): C ()
    Pages: 4-23

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    Handle: RePEc:eee:jebusi:v:67:y:2013:i:c:p:4-23

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    Web page: http://www.elsevier.com/locate/jeconbus

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    Keywords: CEO pay; Principal-agent model; Corporate governance; Decreasing relative risk aversion; Stock-options;

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