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Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion

Pierre Chaigneau ()

FMG Discussion Papers from Financial Markets Group

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.

Date: 2011-10
New Economics Papers: this item is included in nep-bec, nep-cta, nep-hrm and nep-upt
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Related works:
Journal Article: Explaining the structure of CEO incentive pay with decreasing relative risk aversion (2013) Downloads
Working Paper: Explaining the Structure of CEO Incentive Pay with Decreasing Relative Risk Aversion (2012) Downloads
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