We study the matching problem between firms and CEOs, extending a popular version of the principal-agent model developed by Holmstrom and Milgrom (1987). In their model, the optimal pay-performance sensitivity decreases in firm risks and agent's risk aversion, and increases in agent's...

We study the implication of the standard principal-agent theory developed by Holmstrom and Milgrom (1987) on the endogenous matching of CEO and firm. We show that a CEO with low disutility of effort, low risk aversion, or both should manage a safer firm in the matching equilibrium, and that a...