CEO Pay and the Lake Wobegon Effect

@article{Schaefer2008CEOPA,
  title={CEO Pay and the Lake Wobegon Effect},
  author={S. Schaefer and Rachel M. Hayes},
  journal={Financial Accounting},
  year={2008}
}
  • S. Schaefer, Rachel M. Hayes
  • Published 2008
  • Financial Accounting
  • The "Lake Wobegon Effect," which is widely cited as a potential cause for rising CEO pay, is said to occur because no firm wants to admit to having a CEO who is below average, and so no firm allows its CEO's pay package to lag market expectations. We develop a game-theoretic model of this Effect. In our model, a CEO's wage may serve as a signal of match surplus, and therefore affect the value of the firm. We compare equilibria of our model to a full-information case and derive conditions under… CONTINUE READING
    73 Citations
    The CEO Arms Race
    • 5
    • PDF
    Position, Power and Demand for CEOs: Understanding Executive Compensation in the U.S Market
    • 1
    • Highly Influenced
    Modeling executive pay as a barrier call
    • PDF
    Pride and Prestige: Why some firms pay their CEOs less
    • 16
    • PDF
    Essays on Trade Costs, Supply Chain Uncertainty and CEO Compensation
    • Highly Influenced
    Economic Consequences of Equity Compensation Disclosure
    • 3

    References

    SHOWING 1-10 OF 33 REFERENCES
    Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior
    • 1,837
    • PDF
    Takeover Threats and Managerial Myopia
    • J. Stein
    • Economics
    • Journal of Political Economy
    • 1988
    • 1,286
    • PDF
    The Dependence of payPerformance Sensitivity on the Size of the Firm
    • S. Schaefer
    • Economics
    • Review of Economics and Statistics
    • 1998
    • 249
    • PDF
    Capital Structure and Dividend Irrelevance with Asymmetric Information
    • 216
    • PDF
    Equilibrium Incentives in Oligopoly
    • 1,333
    • PDF
    Renegotiation and the Impossibility of Optimal Investment
    • 65
    On Optimal Contracting with Subjective Evaluation
    • 409
    • PDF