We report that the probability that executives exercise options early decreases with the volatility of the underlying stock return. We interpret this to mean that executives' subjective option value increases with volatility and that option grants increase executives' risk appetite. Further...

This paper examines the CEO compensation gap between gender and the female CEOs’ risk preference for incentive. Previous studies argue that women in upper positions receive lower compensation and incentive than men due to their risk-averse tendency. Meanwhile, the literature suggests no...

In a principal-agent setting, offering maximum levels of incentives, i.e., the compensation is completely variable, is far from optimal because this reduces the principal`s profits, and because the risk-aversion nature from the agent matters. In this paper, we hypothesize that an incentivized...

This study investigates the extent to which gender differences in choosing to enter competitive tournaments are due to women's lower taste for competition or differences in confidence. We examine three types of confidence and find that confidence measured by expected ranking is the most...

The decision to settle a motor insurance claim by either negotiation or trial is analysed. This decision may depend on how risk and confrontation adverse or pessimistic the claimant is. The extent to which these behavioural features of the claimant might influence the final compensation amount...

A main prediction of agency theory is the well known risk-incentive trade-off. Incentive contracts should be found in environments with little uncertainty and for agents with low degrees of risk aversion. There is an ongoing debate in the literature about the first trade-off. Due to lack of...

It is often argued that Black-Scholes (1973) values overstate the subjective value of stock options granted to risk-averse and under-diversified executives. We construct a "representative" Swiss executive and extend the certainty- equivalence approach presented by Hall and Murphy (2002) to...

This paper investigates the implications of different prize structures on effort provision in dynamic (two-stage) elimination contests. Theoretical results show that, for risk-neutral participants, a structure with a single prize for the winner of the contest maximizes total effort, while a...

A main prediction of agency theory is the well known risk-incentive trade-off. Incentive contracts should be found in environments with little uncertainty and for agents with low degrees of risk aversion. There is an ongoing debate in the literature about the first trade-off. Due to lack of...

Teams are becoming increasingly important in work settings. We develop a framework to study the strategic implications of a meritocratic notion of desert under which team members care about receiving what they feel they deserve. Team members find it painful to receive less than their perceived...