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

Pierre Chaigneau

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: It is established that the standard principal-agent model cannot explain the structure of commonly used CEO compensation contracts if CRRA preferences 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; stock-options (search for similar items in EconPapers)
JEL-codes: G30 M52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2011-10-16
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http://eprints.lse.ac.uk/119059/ Open access version. (application/pdf)

Related works:
Journal Article: Explaining the structure of CEO incentive pay with decreasing relative risk aversion (2013)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119059

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