Does improved information improve incentives?

• 成果类型: Article
• 署名作者: Chaigneau, Pierre; Edmans, Alex; Gottlieb, Daniel
• 署名单位: Queens University - Canada; Universite de Montreal; HEC Montreal; University of London; London Business School; Centre for Economic Policy Research - UK; European Corporate Governance Institute; Washington University (WUSTL)
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2018.05.002
• 发表日期: 2018
• 页码: 291-307
• 关键词: Executive compensation; limited liability; options; risk management; relative performance evaluation

摘要

This paper studies the value of more precise signals on agent performance in an optimal contracting model with endogenous effort. With limited liability, the agent's wage is increasing in output only if output exceeds a threshold, else it is zero regardless of output. If the threshold is sufficiently high, the agent only beats it, and is rewarded for increasing output through greater effort, if there is a high noise realization. Thus, a fall in output volatility reduces effort incentives information and effort are substitutes offsetting the standard effect that improved information lowers the cost of compensation. We derive conditions relating the incentive effect to the underlying parameters of the agency problem. (C) 2018 Elsevier B.V. All rights reserved.