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Relative Performance Evaluation, Risk Aversion and Entry

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Author Info
Jean-Daniel Guigou
Bruno Lovat
Gwenaël Piase
Abstract

We study the relations between compensation schemes and risk aversion of managers in a strategic framework. We first show that the use of relative performance evaluation (RPE) in compensation contracts reduces the equilibrium profits of Cournot firms if managers are not too risk averse. Second, we introduce entry issues in our model. We then show that forbidding RPE can favour competition.

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Paper provided by Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg in its series Working Papers of BETA with number 2007-26.

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Date of creation: 2007
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Handle: RePEc:ulp:sbbeta:2007-26

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Related research
Keywords: Executive Compensation; Relative Performance Evaluation; Moral Hazard; Market Structure.;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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