No CrossRef data available.
Article contents
A NOTE ON USING EXCESSIVE PERKS TO RESTRAIN THE HIDDEN SAVING PROBLEM
Published online by Cambridge University Press: 03 September 2012
Abstract
Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.
We offer an explanation for why perks are overprovided to high-profile CEOs. Hidden saving by an agent makes it difficult for a principal to control the agent's moral hazard problem. However, an agent typically cannot save perks; for example, a CEO who owns the right to use a private jet for personal use cannot bank the unused airplane hours. Thus, the principal may oversupply the agent perks to avoid the hidden saving problem. When the agent can both exert lower effort and save wage income, i.e., in the presence of the double deviation problem, we show that the principal supplies more perks than the agent would have purchased on his own (i.e., excessive perks).
Information
- Type
- Notes
- Information
- Copyright
- Copyright © Cambridge University Press 2012
References
REFERENCES
Ábrahám, A., Koehne, S., and Pavoni, N. (2011) On the first-order approach in principal-agent models with hidden borrowing and lending. Journal of Economic Theory 146 (4), 1331–1361.Google Scholar
Ábrahám, A. and Pavoni, N. (2008) Efficient allocations with moral hazard and hidden borrowing and lending. Review of Economic Dynamics 11 (4), 781–803.Google Scholar
Alchian, A. A. and Demsetz, H. (1972) Production, information costs, and economic organization. American Economic Review 62, 777–795.Google Scholar
Bennardo, A., Chiappori, P.-A., and Song, J. (2010) Perks as Second Best Optimal Compensations. CSEF working papers 244, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.Google Scholar
Edmans, A., Gabaix, X., and Landier, A. (2009) A multiplicative model of optimal CEO incentives in market equilibrium. Review of Financial Studies 22 (12), 4881–4917.Google Scholar
Farhi, E. and Werning, I. (2009) Capital Taxation: Quantitative Explorations of the Inverse Euler Equation. Working papers 06-15, MIT Department of Economics.CrossRefGoogle Scholar
Gabaix, X. and Landier, A. (2008) Why has CEO pay increased so much? Quarterly Journal of Economics 123 (1), 49–100.Google Scholar
Grossman, S. J. and Hart, O. D. (1983) Implicit contracts under asymmetric information. Quarterly Journal of Economics 98 (3), 123–156.CrossRefGoogle Scholar
Harris, M. and Raviv, A. (1979) Optimal incentive contracts with imperfect information. Journal of Economic Theory 20 (2), 231–259.Google Scholar
Holmstrom, B. (1979) Moral hazard and observability. Bell Journal of Economics 10 (1), 74–91.Google Scholar
Hopenhayn, H. and Jarque, A. (2010) Unobservable persistent productivity and long term contracts. Review of Economic Dynamics 13 (2), 333–349.Google Scholar
Jensen, M. C. and Meckling, W. H. (1976) Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3 (4), 305–360.Google Scholar
Jensen, M. C. and Murphy, K. J. (1990) Performance pay and top-management incentives. Journal of Political Economy 98 (2), 225–64.Google Scholar
Jewitt, I. (1988) Justifying the first-order approach to principal–agent problems. Econometrica 56 (5), 1177–1190.Google Scholar
Kocherlakota, N. (2004) Figuring out the impact of hidden savings on optimal unemployment insurance. Review of Economic Dynamics 7 (3), 541–554.Google Scholar
Kole, S. R. (1997) The complexity of compensation contracts. Journal of Financial Economics 43 (1), 79–104.Google Scholar
Lustig, H., Syverson, C., and Van Nieuwerburgh, S. (2011) Technological change and the growing inequality in managerial compensation. Journal of Financial Economics 99 (3), 601–627.CrossRefGoogle Scholar
Marino, A. M. and Zábojník, J. (2008) Work-related perks, agency problems, and optimal incentive contracts. RAND Journal of Economics 39 (2), 565–585.Google Scholar
Mirrlees, J. A. (1976) The optimal structure of incentives and authority within an organization. Bell Journal of Economics 7 (1), 105–131.Google Scholar
Murphy, K. J. (1999) Executive compensation. In Ashenfelter, O. and Card, D. (eds.), Handbook of Labor Economics, vol. 3, ch. 38, pp. 2485–2563. Amsterdam: Elsevier.Google Scholar
Oyer, P. (2005) Salary or Benefits? NBER working papers 11817, National Bureau of Economic Research, Inc.Google Scholar
Rajan, R. G. and Wulf, J. (2006) Are perks purely managerial excess? Journal of Financial Economics 79 (1), 1–33.Google Scholar
Rogerson, W. P. (1985b) The first-order approach to principal-agent problems. Econometrica 53 (6), 1357–67.Google Scholar
SEC (2006) Executive Compensation and Related Party Disclosure; Proposed Rule. In Federal Register, Vol. 71, p. 6542.Google Scholar
Shavell, S. (1979a) On moral hazard and insurance. Quarterly Journal of Economics 93 (4), 541–62.Google Scholar
Shavell, S. (1979b) Risk sharing and incentives in the principal and agent relationship. Bell Journal of Economics 10 (1), 55–73.Google Scholar
Wang, C. (1997) Incentives, CEO compensation, and shareholder wealth in a dynamic agency model. Journal of Economic Theory 76 (1), 72–105.Google Scholar
Yermack, D. (1995) Do corporations award CEO stock options effectively? Journal of Financial Economics 39 (2–3), 237–269.CrossRefGoogle Scholar
Yermack, D. (2006) Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns. Journal of Financial Economics 80 (1), 211–242.Google Scholar
You have
Access
- 2
- Cited by