Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion
AbstractIt is established that the standard principal-agent model cannot explain the structure of commonly used CEO compensation contracts if CRRA preferences 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 InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1208.
Date of creation: 2012
Date of revision:
CEO pay; principal-agent model; corporate governance; stock-options;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
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