A NOTE ON USING EXCESSIVE PERKS TO RESTRAIN THE HIDDEN SAVING PROBLEM

YiLi Chien and Joon Song

Macroeconomic Dynamics, 2014, vol. 18, issue 2, 480-496

Abstract: We offer an explanation for why perks are overprovided to high-profile CEOs. Hidden saving by an agent makes it difficult for a principal to control the agent's moral hazard problem. However, an agent typically cannot save perks; for example, a CEO who owns the right to use a private jet for personal use cannot bank the unused airplane hours. Thus, the principal may oversupply the agent perks to avoid the hidden saving problem. When the agent can both exert lower effort and save wage income, i.e., in the presence of the double deviation problem, we show that the principal supplies more perks than the agent would have purchased on his own (i.e., excessive perks).

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:18:y:2014:i:02:p:480-496_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().