Power, Luck and Ideology – Technological and Institutional Parameters of the Agency Problem for CEOs*

We propose an explanation for the growth of executive pay since the 1980s. New information and communication technologies (ICTs) appear to favor winner-take-all markets and to accentuate firm-level volatility of profits. We show, using an efficiency wage model, that these changes lead to higher executive pay. This is an example of what we have called, in other contexts, power-biased technological change (PBTC). The changes in market structure and the power of CEOs, however, are not only technologically but also institutionally contingent.JEL Classification: D31, J41, O33