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When to Fire a CEO: Optimal Termination in Dynamic Contracts

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The repeated agency model has been widely applied to a number of interesting and important problems in economics, though in many instances, the fact that the standard model generates transient dynamics limits the usefulness of the results obtained from the model for the simple reason that purely transient dynamc phenomena are empirically irrelevant since they cannot be systematically observed and studied. \ In this paper, we show to embed the standard long-term contracting model in an economic environment in which the inherently transient dynamics of the model are transformed into dyanmics which are stationary and ergodic. \ We then use the model to study CEO termination and issues of corporate takeover.

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File URL: http://econ.tepper.cmu.edu/spear/terminate_03-02.pdf
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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2002-E5.

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Handle: RePEc:cmu:gsiawp:-397111066
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Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890

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  1. Keiichi Hori & Hiroshi Osano, 2013. "Managerial Incentives and the Role of Advisors in the Continuous-Time Agency Model," Review of Financial Studies, Society for Financial Studies, vol. 26(10), pages 2620-2647.
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  12. Andrei Barbos, 2016. "Dynamic Contracts with Random Monitoring," Working Papers 0416, University of South Florida, Department of Economics.
  13. Wang, Cheng & Yang, Youzhi, 2015. "Equilibrium matching and termination," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 208-229.
  14. Phelan Christopher, 1995. "Repeated Moral Hazard and One-Sided Commitment," Journal of Economic Theory, Elsevier, vol. 66(2), pages 488-506, August.
  15. Graham, Brad & Robles, Jack, 2016. "Attorney fees in repeated relationships," Working Paper Series 5074, Victoria University of Wellington, School of Economics and Finance.
  16. Susanne Ohlendorf & Patrick W. Schmitz, 2012. "Repeated Moral Hazard And Contracts With Memory: The Case Of Risk‐Neutrality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 433-452, 05.
  17. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
  18. Antonio Mello & Erwan Quintin, 2015. "A Back-up Quarterback View of Mezzanine Finance," 2015 Meeting Papers 370, Society for Economic Dynamics.
  19. Josepa Miquel-Florensa, 2013. "Dynamic contractual incentives in the face of a Samaritans’s dilemma," Theory and Decision, Springer, vol. 74(1), pages 151-166, January.
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  24. Martin Szydlowski, 2012. "Ambiguity in Dynamic Contracts," Discussion Papers 1543, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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