Relative performance evaluation and contract externalities
Tóm tắt
We consider the incentive characteristics of optimal linear contracts based on relative performance evaluation (RPE) for managers under moral hazard in imperfectly competitive product markets. Each contract influences the quantity choices of all competing agents causing contract externalities that affect the principals’ contracting game. We analyze the relations between the optimal extent of RPE and several firm and market characteristics, allowing for heterogeneous firms and idiosyncratic firm risk. In general, we find non-monotonic comparative static results regarding the influence of market and firm-specific risk, the industry’s competitiveness, and the correlation of the firms’ profit.
Tài liệu tham khảo
Aggarwal RK, Samwick AA (1999a) Executive compensation, strategic competition, and relative performance evaluation: theory and evidence. J Finance 54: 1999–2043
Aggarwal RK, Samwick AA (1999b) The other side of the trade-off: the impact of risk on executive compensation. J Polit Econ 107: 65–105
Albuquerque AM (2005) Who are your peers? A study of relative performance evaluation. Working Paper, Boston University
Antle R, Smith AJ (1986) An empirical investigation of the relative performance evaluation of corporate executives. J Acc Res 24: 1–39
Bagwell K (1995) Commitment and observability in games. Games Econ Behav 8: 271–280
Barro JR, Barro RJ (1990) Pay, performance, and turnover of bank CEOs. J Lab Econ 8: 448–481
Cuñat V, Guadalupe M (2005) How does product market competition shape incentive contracts?. J Eur Econ Assoc 3: 1058–1082
Dierkes S (2004) Strategische Kostenanpassung oder relative Leistungsbewertung—Was ist besser?. zfbf 56: 45–59
Fershtman C (1985) Managerial incentives as a strategic variable in duopolistic environment. Int J Ind Organ 3: 245–253
Fumas VS (1992) Relative performance evaluation of management: the effects on industrial competition and risk sharing. Int J Ind Organ 10: 473–489
Gibbons R, Murphy KJ (1990) Relative performance evaluation for chief executive officers. Ind Lab Relat Rev 43: 30S–51S
Holmström BR (1982) Moral hazard in teams. Bell J Econ 13: 324–340
Holmström BR, Milgrom PR (1987) Aggregation and linearity in the provision of intertemporal incentives. Econometrica 55: 303–328
Holmström BR, Milgrom PR (1990) Regulating trade among agents. J Inst Theor Econ 146: 85–105
Huck S, Müller W (2000) Perfect versus imperfect observability—an experimental test of Bagwell’s result. Games Econ Behav 31: 174–190
Janakiraman SN, Lambert RA, Larcker DF (1992) An empirical investigation of the relative performance evaluation hypothesis. J Acc Res 30: 53–69
Jensen MC, Murphy KJ (1990) Performance pay and top-management incentives. J Polit Econ 98: 225–264
Joh SW (1999) Strategic managerial incentive compensation in Japan: relative performance evaluation and product market collusion. Rev Econ Stat 81: 303–313
Karuna C (2007) Industry product market competition and managerial incentives. J Acc Econ 43: 275–297
Kopel M, Riegler C (2006) Delegation in an R&d game with spillovers. SSRN Working Paper
Kräkel M (2004) Managerial versus entrepreneurial firms: the benefits of separating ownership and control. Schmalenbach Bus Rev 56: 2–19
Miller NH, Pazgal AI (2002) Relative performance as a strategic commitment mechanism. Manager Dec Econ 23: 51–68
Reitman D (1993) Stock options and the strategic use of managerial incentives. Am Econ Rev 83: 513–524
Schelling TC (1960) The strategy of conflict. Havard University Press, Cambridge
Vickers J (1985) Delegation and the theory of the firm. Econ J 95(Suppl): 138–147