Efficiency and Specific Skills of Managers: the Tradeoff between Internal and External Incentives

Efficacité et compétences spécifiques des dirigeants: l’arbitrage entre incitations externes et incitations internes

Christian At, Nathalie Chappe (), Pierre-Henri Morand () and Lionel Thomas ()
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Nathalie Chappe: CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]
Lionel Thomas: CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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Abstract: This paper develops a principal-agent model of the firm in which shareholders give an incentive contract to a manager to limit the socially costly extraction of private benefits, and to induce truthful revelation of the manager's type. We assume a type-dependent reservation utility. More precisely, the manager has an outside opportunity depending on the magnitude of his specific skills. Three regimes emerge, characterized by different levels of private benefits and wages. We find that type-dependent reservation utilities can improve the efficiency of the allocation from the social planner's point of view, whereas shareholders experience ambiguous effects.

Keywords: managerial remuneration; private benefits; moral hazard and adverse selection; rémunération des dirigeants; bénéfices privés; aléa moral et sélection adverse (search for similar items in EconPapers)
Date: 2009
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01308329v1
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Published in Annales d'Economie et de Statistique, 2009, 93/94, pp.301-326

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01308329

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