Morellec, Erwan; Niu, Jijun - Institut für Schweizerisches Bankwesen <Zürich> - 2005
This paper presents a model of executive compensation in which the executive is risk averse and has specific knowledge … - knowledge about the optimal actions to take that is costly to transfer to the principal. The model generates predictions that … compensation. Notably, we find that relative performance evaluation is optimal only if the quality of specific knowledge is low. We …