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Relative Performance Evaluation, Risk Aversion and Entry

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  • 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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Bibliographic Info

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, 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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Keywords: Executive Compensation; Relative Performance Evaluation; Moral Hazard; Market Structure.;

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