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Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion

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  • Pierre Chaigneau

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Abstract

It is established that the standard principal-agent model cannot explain the structure of commonly used CEO compensation contracts if CRRA preferences are postulated. However, we demonstrate that this model has potentially a high explanatory power with preferences with decreasing relative risk aversion, in the sense that a typical CEO contract is approximately optimal for plausible preference parameters.

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  • Pierre Chaigneau, 2011. "Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion," FMG Discussion Papers dp693, Financial Markets Group.
  • Handle: RePEc:fmg:fmgdps:dp693
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    Cited by:

    1. repec:oup:revfin:v:21:y:2017:i:5:p:1805-1846. is not listed on IDEAS
    2. Pierre Chaigneau, 2012. "The Effect of Risk Preferences on the Valuation and Incentives of Compensation Contracts," Cahiers de recherche 1209, CIRPEE.
    3. Pierre Chaigneau, 2012. "The effect of risk preferences on the valuation and incentives of compensation contracts," FMG Discussion Papers dp697, Financial Markets Group.
    4. repec:oup:rfinst:v:21:y:2017:i:5:p:1805-1846. is not listed on IDEAS

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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