Relative Wealth Concerns, Executive Compensation, and Managerial Risk-Taking†

• 成果类型: Article
• 署名作者: Liu, Q., I; Sun, Bo
• 署名单位: Peking University; University of Virginia
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MICROECONOMICS
• ISSN/ISSBN: 1945-7669
• DOI: 10.1257/mic.20200325
• 发表日期: 2023
• 页码: 568-598
• 关键词: luck; pay; COMPETITION; incentives; joneses; CHOICE

摘要

This paper theoretically examines how relative wealth concerns affect equilibrium contracting and systemic risk-taking. We find that such externalities can generate pay for luck as an equilibrium strategy. In expectation of pay for luck in other firms, tying mana-gerial pay to luck provides insurance to managers against a com-pensation shortfall relative to executive peers. We also show that an effort-inducing mechanism exists: managers have additional incen-tives to exert effort in utilizing investment opportunities, which helps them keep up with their peers during industry movements; however, pay for luck that is efficient within firms can nonetheless exacerbate aggregate fluctuations, especially during periods of heightened mar-ket risk. (JEL D81, D82, D86, G51, M12, M52)