Optimal Compensation Contracts For Optimistic Managers
AbstractWe study an employment contract between an (endogenously) optimistic manager and realistic investors. The manager faces a trade-off between ensuring that effort reflects accurate news and savoring emotionally beneficial good news. Investors and manager agree on optimal recollection when the weight the manager attaches to anticipatory utility is small. For intermediate values investors bear an extra-cost to make the manager recall bad news. For large weights investors renounce inducing signal recollection. We extend the analysis to the case in which anticipatory utility is the manager’s private information and derive testable predictions on the relationship between personality traits, managerial compensation and recruitment policies
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Bibliographic InfoPaper provided by Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno in its series Working Papers with number 3_224.
Date of creation: Nov 2012
Date of revision:
Publication status: Published in Working Papers, november 2012, pages 1-29
Over-optimism; managerial compensation; anticipatory utility;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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