A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium

  title={A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium},
  author={Alex Edmans and X. Gabaix and A. Landier},
  journal={Corporate Finance: Governance},
  • Alex Edmans, X. Gabaix, A. Landier
  • Published 2009
  • Economics
  • Corporate Finance: Governance
  • 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… CONTINUE READING
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