Golden parachutes: Credible commitments or evidence of shirking?

Dino Falaschetti

Microeconomics from EconWPA

Abstract: External agents are frequently characterized as necessary for efficiency in team production settings. At the same time, these agents must be constrained from opportunistically exercising their enforcement capabilities. I argue that collective action costs and formal institutions (e.g., golden parachute agreements) can act as substitute factors in producing this constraint. The incidence of golden parachutes in a sample of S&P 500 firms is consistent with this conjecture: golden parachutes are more likely in firms with concentrated ownership. Interpreted in this light, golden parachutes enhance efficiency by increasing the credibility with which owners can commit against opportunism.

Keywords: Credible commitment; Ownership structure (search for similar items in EconPapers)
JEL-codes: D23 L14 L23 (search for similar items in EconPapers)
Date: 2003-11-16
Note: Type of Document - pdf; prepared on WinXP; pages: 20
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:0311004

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