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Risk Aversion, Performance Pay, and the Principal-Agent Problem
Open accessAbstract
This paper calculates numerical solutions to the principal-agent problem and compares the results to the stylized facts of CEO compensation. The numerical predictions come from parameterizing the models of Grossman and Hart and of Holmstrom and Milgrom. While the correct incentives for a CEO can greatly enhance a firm's performance, providing such incentives need not be expensive. For many parameter values, CEO compensation need increase only by about $10 for every $1,000 of additional shareholder value; for some values, the amount is 0.003 cents.
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Citations
Cited by
A Survey of Corporate Governance
Shleifer, A., & Vishny, R. W. (1997) · The Journal of Finance · doi:10.1111/j.1540-6261.1997.tb04820.x · Cited by 16,243
The use of equity grants to manage optimal equity incentive levels
Core, J., & Guay, W. (1999) · Journal of Accounting and Economics · doi:10.1016/s0165-4101(99)00019-1 · Cited by 1,456
Information and the Change in the Paradigm in Economics
Stiglitz, J. E. (2002) · American Economic Review · doi:10.1257/00028280260136363 · Cited by 1,455
Do analysts matter for governance? Evidence from natural experiments
Chen, T., Harford, J., & Lin, C. (2015) · Journal of Financial Economics · doi:10.1016/j.jfineco.2014.10.002 · Cited by 747
Frydman, C., & Jenter, D. (2010) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-120209-133958 · Cited by 542
Metadata
- Authors
- Haubrich, J. G.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1994-04
- Volume
- 102
- Issue
- 2
- Pages
- 258-276
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2050142969
- Cited by
- 349
- References
- 0
- FWCI
- 40.53
- Type
- journal article
- Language
- en
- Open access
- bronze
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- CoChat. (2026). Citation check: Risk Aversion, Performance Pay, and the Principal-Agent Problem. https://app.cochat.ai/papers/10.1086/261931
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- Haubrich, J. G. (1994). Risk Aversion, Performance Pay, and the Principal-Agent Problem. Journal of Political Economy. https://doi.org/10.1086/261931
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
