Classic financial agency theory recommends compensation through stock options rather than shares to induce risk … neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that … excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk …

result of powerful managers setting their own pay. Others interpret high pay as the result of optimal contracting in a …

It is often argued that Black-Scholes (1973) values overstate the subjective value of stock options granted to risk … coefficients of relative risk aversion, the discount can be above 50% compared to the Black-Scholes values. Regression analysis … and growth opportunities, whereas the managers' pay-forperformance sensitivity remains largely unexplained. Firms with …

find that entrenched managers pay their workers more. For example, our estimates show that CEOs with more control rights … as evidence of agency problems between shareholders and managers affecting workers' pay. The findings do not appear to be … with an agency model in which entrenched managers pay high wages because they come with private benefits, such as lower …