When to Fire a CEO: Optimal Termination in Dynamic Contracts

Stephen Spear () and Cheng Wang

No 2002-E5, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: The repeated agency model has been widely applied to a number of interesting and important problems in economics, though in many instances, the fact that the standard model generates transient dynamics limits the usefulness of the results obtained from the model for the simple reason that purely transient dynamc phenomena are empirically irrelevant since they cannot be systematically observed and studied. \ In this paper, we show to embed the standard long-term contracting model in an economic environment in which the inherently transient dynamics of the model are transformed into dyanmics which are stationary and ergodic. \ We then use the model to study CEO termination and issues of corporate takeover.

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Related works:
Journal Article: When to fire a CEO: optimal termination in dynamic contracts (2005)
Working Paper: When to Fire a CEO: Optimal Termination in Dynamic Contracts (2005)
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