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Does globalization create superstars? A simple theory of managerial wages

  • Schmutzler, Armin
  • Gersbach, Hans

To examine the impact of globalization on managerial compensation, we consider a matching model where firms compete both in the product market and in the managerial market. We show that globalization, that is, the simultaneous integration of product markets and managerial pools, leads to an increase in the heterogeneity of managerial salaries. Typically, while the most able managers obtain a wage increase, less able managers are faced with a reduction in wages. Hence our model can explain the increasing heterogeneity of CEO compensation that has been observed in the last few decades.

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79804.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79804
Contact details of provider: Web page: http://www.socialpolitik.org/
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  1. Fabienne Llense, 2008. "French CEO Compensations: What is the Cost of a Mandatory Upper Limit?," CESifo Working Paper Series 2402, CESifo Group Munich.
  2. Jan Boone, 2008. "Competition: Theoretical Parameterizations and Empirical Measures," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 587-611, December.
  3. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
  4. Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 191-213, April.
  5. George-Levi Gayle & Robert A. Miller, 2009. "Has Moral Hazard Become a More Important Factor in Managerial Compensation?," American Economic Review, American Economic Association, vol. 99(5), pages 1740-69, December.
  6. Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
  7. Boone, J., 2000. "Competitive pressure : The effects on investments in product and process innovation," Other publications TiSEM 88418185-7603-4c36-92fd-3, Tilburg University, School of Economics and Management.
  8. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  9. Nina Baranchuk & Glenn MacDonald & Jun Yang, 2011. "The Economics of Super Managers," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3321-3368.
  10. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," 2006 Meeting Papers 518, Society for Economic Dynamics.
  11. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-58, December.
  12. Paolo Manasse & Alessandro Turrini, . "Trade, Wages and "Superstars"," Working Papers 140, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  13. Giannetti, Mariassunta, 2011. "Serial CEO incentives and the structure of managerial contracts," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 633-662, October.
  14. Paul Milgrom, 2003. "Matching with Contracts," Working Papers 03003, Stanford University, Department of Economics.
  15. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," NBER Working Papers 16585, National Bureau of Economic Research, Inc.
  16. Sasaki, Hiroo & Toda, Manabu, 1996. "Two-Sided Matching Problems with Externalities," Journal of Economic Theory, Elsevier, vol. 70(1), pages 93-108, July.
  17. Benjamin E. Hermalin, 2005. "Trends in Corporate Governance," Journal of Finance, American Finance Association, vol. 60(5), pages 2351-2384, October.
  18. Hans Gersbach & Armin Schmutzler, 2003. "Endogenous spillovers and incentives to innovate," Economic Theory, Springer, vol. 21(1), pages 59-79, 01.
  19. Steven N. Kaplan, 2012. "Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges," NBER Working Papers 18395, National Bureau of Economic Research, Inc.
  20. repec:ner:tilbur:urn:nbn:nl:ui:12-84400 is not listed on IDEAS
  21. Schmutzler, Armin, 2013. "Competition and investment — A unified approach," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 477-487.
  22. Marcus Asplund & Volker Nocke, 2006. "Firm Turnover in Imperfectly Competitive Markets -super-1," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 295-327.
  23. Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
  24. Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
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