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Efficiency wage effects of profit sharing are combined with option values related to stochastic future profit variations. These option effects occur if the workers' profit share is fixed by long-term contracts. The Pareto-improving optimal level of the sharing ratio is calculated for two...
Persistent link: https://www.econbiz.de/10010883606
This paper summarizes new evidence from the “Shared Capitalism” Project on the extent to which workers’ earnings depend on the performance of their firm or work group in the US and advanced European countries and on the impact of sharing arrangements on economic behavior. The evidence...
Persistent link: https://www.econbiz.de/10011071296
It is widely believed that call options induce risk-taking behavior. However, Ross (2003) challenges this intuition by demonstrating the impossibility of inducing managers with arbitrary preferences to always act as if less risk averse. If preferences and price distributions are unknown,...
Persistent link: https://www.econbiz.de/10012726580
In this paper, we develop and test a model of optimal incentive compensation that incorporates consideration for the role of both competition and cooperation among the firm's top executives. Our model highlights the effects of firm risk on the relative importance of cooperative versus...
Persistent link: https://www.econbiz.de/10012726609
In this paper we examine intra-firm competition in the U.S. mutual fund industry. Our empirical study shows that fund managers within mutual fund families compete against other fund managers within the same fund family. They adjust the risk they take dependent on the relative position within...
Persistent link: https://www.econbiz.de/10012735622
Among the reactions to recent corporate scandals are calls for greater transparency of insiders' trades. The Securities and Exchange Commission's recent rule on fair disclosure is accompanied by a safe harbor from prosecution under insider trading laws for insiders who pre-commit to trades. A...
Persistent link: https://www.econbiz.de/10012737712
We propose a multi-period model to value employee options allowing for the possibility that a risk-averse employee strategically exercises her options over time rather than at a single date. Our results describing the representative employee's option exercise behavior are broadly consistent with...
Persistent link: https://www.econbiz.de/10012778761
Contracts are examined when outcomes depend on managers' choices as well as efforts. As the cost of effort shrinks relative to payoffs, the optimal contract converges to a linear payoff if the control space of the agent has full dimensionality, but not otherwise. Thus, when the agent can trade...
Persistent link: https://www.econbiz.de/10012788316
This paper shows that portfolio constraints have important implications for management compensation and performance evaluation. In particular, in the presence of portfolio constraints, allowing for benchmarking can be beneficial. Benchmark design arises as an alternative effort inducement...
Persistent link: https://www.econbiz.de/10012707660
In this paper we study delegated portfolio management when the manager's ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. We find that the...
Persistent link: https://www.econbiz.de/10012708200