A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium
@article{Edmans2009AMM, title={A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium}, author={Alex Edmans and Xavier Gabaix and Augustin Landier}, journal={Microeconomic Theory eJournal}, year={2009} }
This paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium, by embedding a moral hazard problem into a talent assignment model. By considering multiplicative specifications for the CEO's utility and production functions, we generate a number of different results from traditional additive models. First, both the CEO's low fractional ownership (the Jensen--Murphy incentives measure) and its negative relationship with firm size can be…
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