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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  • G. Guthrie
  • Business, Economics
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  • 2019
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