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

Chaigneau, Pierre (2011) Explaining the structure of CEO incentive pay with decreasing relative risk aversion. Financial Markets Group Discussion Papers (693). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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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.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2011 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General M - Business Administration and Business Economics; Marketing; Accounting > M5 - Personnel Economics > M52 - Compensation and Compensation Methods and Their Effects (stock options, fringe benefits, incentives, family support programs, seniority issues)
Date Deposited:	29 Jun 2023 08:15
Last Modified:	14 Sep 2024 04:31
URI:	http://eprints.lse.ac.uk/id/eprint/119059

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