Equilibrium CEO Contract with Belief Heterogeneity

Milo Bianchi, Rose-Anne Dana and Elyès Jouini

No 21-1253, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Consider a rm owned by shareholders with heterogeneous beliefs and run by a manager who chooses random production plans. Shareholders do not observe the chosen plan but only its realization. The nancial market consists of assets contingent on production realizations. A contract for the manager species her compensation as a function of the rms production and possibly some restrictions to trade in the nancial market. Shareholders are unrestricted. We dene a concept of equilibrium between the manager and shareholders such that the equilibrium production plan is unanimously preferred by the manager and the shareholders, markets clear and the manager has no incentive to cheat. We rst analyze the properties of such equilibria and in particular show that the contract should restrict the manager from trading. We next provide a framework where such equilibria exist. We lastly study the properties of equilibrium compensations when shareholders have beliefs that can be ranked in terms of optimism towards the equilibrium plan. Specic attention is given to their departure from linear compensations.

Keywords: heterogeneous beliefs; asymmetric information; manager-shareholders equi-; librium. (search for similar items in EconPapers)
JEL-codes: D24 D51 D70 G32 G34 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-isf and nep-mic
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Related works:
Journal Article: Equilibrium CEO contract with belief heterogeneity (2022)
Working Paper: Equilibrium CEO contract with belief heterogeneity (2022)
Working Paper: Equilibrium CEO contract with belief heterogeneity (2022)
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