Explaining the structure of CEO incentive pay with decreasing relative risk aversion

Pierre Chaigneau

Journal of Economics and Business, 2013, vol. 67, issue C, 4-23

Abstract: It is established that the standard principal-agent model cannot explain the structure of commonly used CEO compensation contracts if preferences with constant relative risk aversion are postulated. However, we demonstrate that this model has potentially a high explanatory power with preferences with decreasing relative risk aversion, in the sense that a typical CEO contract is approximately optimal for plausible preference parameters.

Keywords: CEO pay; Principal-agent model; Corporate governance; Decreasing relative risk aversion; Stock-options (search for similar items in EconPapers)
JEL-codes: G30 M52 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion (2012)
Working Paper: Explaining the structure of CEO incentive pay with decreasing relative risk aversion (2011)
Working Paper: Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:67:y:2013:i:c:p:4-23

DOI: 10.1016/j.jeconbus.2012.10.002

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