Regulating Executive Pay: Incentive Contracts and Nonbinding Bonus Caps

Marcus Dittrich () and Silvio Städter

Journal of Institutional and Theoretical Economics (JITE), 2021, vol. 177, issue 1, 81-96

Abstract: This paper analyzes the effects of a regulatory cap on executive pay. We use a principal-agent model with moral hazard in which a firm and a manager bargain over an incentive contract, and we discuss the consequences of a nonbinding cap on bonus payments. We find that the bonus cap negatively affects the manager's effort choice and social welfare, even if the cap is introduced at a nonbinding level.

Keywords: regulatory pay cap; incentive contract; moral hazard; Kala-Smorodinsky bargaining solution (search for similar items in EconPapers)
JEL-codes: C71 D86 G28 H12 J33 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/regulating- ... 101628jite-2020-0045
Fulltext access is included for subscribers to the printed version.

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:mhr:jinste:urn:doi:10.1628/jite-2020-0045

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

DOI: 10.1628/jite-2020-0045

Access Statistics for this article

Journal of Institutional and Theoretical Economics (JITE) is currently edited by Gerd Mühlheußer and Bayer, Ralph-C

More articles in Journal of Institutional and Theoretical Economics (JITE) from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().