Classic financial agency theory recommends compensation through stock options rather than shares to induce risk … excessive risks—a result that cannot be accounted for by classic incentive theory. We develop a basic model in which such risk …-taking behavior is explained based on a richer array of risk attitudes derived from Prospect Theory. We use the model to derive …

work for. We reject, however, the efficient pay hypothesis as CEO pay and the demand for managers increases in Germany in … difficult times when the typical firm size shrinks. We find further that domestic and global competition for managers has …

work for. We reject, however, the efficient pay hypothesis as CEO pay and the demand for managers increases in Germany in … difficult times when the typical firm size shrinks. We find further that domestic and global competition for managers has …

and growth opportunities, whereas the managers' pay-forperformance sensitivity remains largely unexplained. Firms with …

In the recent research on the effect of stock-based incentive compensation for managers on the degree of collusion … expectations of future demand change over time, managers with stock-based remuneration still have a greater incentive to collude … competition over time. If demand is stochastic, managers can set higher collusive prices in recessions. If demand follows a …

changes stochastically between a high and low growth rate, managers with undeferred stock-based remuneration set prices weakly … procyclically with positive and weakly anticyclically with negative correlation. Deferred compensation induces managers to collude …