Relative Performance Evaluation, Risk Aversion and Entry

Jean-Daniel Guigou (), Bruno Lovat and Gwenaël Piaser ()
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Jean-Daniel Guigou: Luxembourg School of Finance, University of Luxembourg
Gwenaël Piaser: Luxembourg School of Finance, University of Luxembourg

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: We study the relations between compensation schemes and risk aversion of managers in a strategic framework. We first show that the use of relative performance evaluation (RPE) in compensation contracts reduces the equilibrium profits of Cournot firms if managers are not too risk averse. Second, we introduce entry issues in our model. We then show that forbidding RPE can favour competition.

Keywords: Executive Compensation; Relative Performance Evaluation; Moral Hazard; Market Structure. (search for similar items in EconPapers)
JEL-codes: D43 D82 D86 (search for similar items in EconPapers)
Date: 2007
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