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Optimal Compensation Contracts For Optimistic Managers

  • Giovanni Immordino


    (Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno)

  • Anna Maria C. Menichini


    (Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno)

  • Maria Grazia Romano


    (Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno)

We study an employment contract between an (endogenously) optimistic manager and realistic investors. The manager faces a trade-off between ensuring that effort reflects accurate news and savoring emotionally beneficial good news. Investors and manager agree on optimal recollection when the weight the manager attaches to anticipatory utility is small. For intermediate values investors bear an extra-cost to make the manager recall bad news. For large weights investors renounce inducing signal recollection. We extend the analysis to the case in which anticipatory utility is the manager’s private information and derive testable predictions on the relationship between personality traits, managerial compensation and recruitment policies

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Paper provided by Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno in its series Working Papers with number 3_224.

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Date of creation: Nov 2012
Date of revision:
Publication status: Published in Working Papers, november 2012, pages 1-29
Handle: RePEc:sep:wpaper:3_224
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  9. Caplin, Andrew & Leahy, John, 1997. "Psychological Expected Utility Theory and Anticipatory Feelings," Working Papers 97-37, C.V. Starr Center for Applied Economics, New York University.
  10. Augustin Landier & David Thesmar, 2009. "Financial Contracting with Optimistic Entrepreneurs," Post-Print hal-00461106, HAL.
  11. Augustin Landier & David Thesmar, 2009. "Financial Contracting with Optimistic Entrepreneurs," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 117-150, January.
  12. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 489-520.
  13. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
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