Information Externalities, Share-Price Based Incentives and Managerial Behaviour

Simon Grant, Stephen King and Ben Polak ()
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Ben Polak: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/benjamin-polak

No 1107, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We survey recent theoretical research on the effects of short-term share-price based marginal incentive schemes. Such schemes can induce inefficient managerial behaviour in both hidden action and hidden type contexts. These problems arise from informational asymmetries: managers take actions to manipulate the information flow rather than to maximize firm value. More generally, imperfect transmission of information between managers and shareholders or between managers of different firms can lead to similar distortions even when the parties' interests are aligned.

Keywords: Information externalities; share-price based incentives (search for similar items in EconPapers)
JEL-codes: G30 J33 (search for similar items in EconPapers)
Pages: 26 pages
Date: 1995-07
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Citations: View citations in EconPapers (9)

Published in Journal of Economic Surveys (1996), 10: 1-21

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Journal Article: Information Externalities, Share-Price Based Incentives and Managerial Behaviour (1996)
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