IDEAS home Printed from https://ideas.repec.org/a/sbr/abstra/v54y2002i1p80-111.html
   My bibliography  Save this article

Costs And Benefits From Repricing Employee

Author

Listed:
  • Barbara Pirchegger

Abstract

A principal-agent model is used to analyze whether repricing stock option contracts can be beneficial for the contracting parties. A principal employs an agent and offers him an exogenously given contract that includes a fixed compensation payment as well as stock options. After the contract is signed, the agent performs two efforts that the principal cannot observe. As soon as the first effort is completed, both parties observe a signal that contains information about the final share price. At the end of the period the agent is paid according to his contract. The signal is assumed to reveal information about either an unobservable state of nature or the agent‘s first effort. For both settings a commitment scenario and a renegotiation scenario are compared. The paper shows that if the signal contains information about the state of nature to occur the renegotiation setting might weakly dominate the commitment setting. However, if the signal is informative about the agent‘s first effort, the renegotiation setting turns out to be weakly dominated by the commitment setting.

Suggested Citation

  • Barbara Pirchegger, 2002. "Costs And Benefits From Repricing Employee," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 54(1), pages 80-111, January.
  • Handle: RePEc:sbr:abstra:v:54:y:2002:i:1:p:80-111
    as

    Download full text from publisher

    File URL: http://www.vhb.de/sbr/pdfarchive.html
    Download Restriction: no

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sbr:abstra:v:54:y:2002:i:1:p:80-111. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (sbr). General contact details of provider: http://edirc.repec.org/data/fbmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.