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Cited by 559

The DOI matches its Crossref record; 57 of the 57 references it cites were found in a registry or an index.

A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium

Open access
Edmans, Alex, Gabaix, Xavier, Landier, Augustin·2009·Review of Financial Studies
DOI 10.1093/rfs/hhn117
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Abstract

Existing compensation models typically assume that e¤ort has additive e¤ects on CEO utility. This paper considers multiplicative speci…cations for the principal-agent problem, and further embeds the problem into a talent assignment model. The result is a uni-…ed framework endogenizing both incentives and total pay levels in competitive market equilibrium. The predictions generated by multiplicative speci…cations match a number of stylized facts inconsistent with an additive model. First, the negative relationship between the CEO’s e¤ective equity stake and …rm size can be quantitatively explained by an optimal contracting model and thus need not re‡ect rent extraction. Second, our multiplicative setting predicts that the dollar change in wealth for a percentage change in …rm value, scaled by annual pay, is independent of …rm size and thus a desirable empirical measure. This independence is con…rmed in the data. Third, incentive compensation is e¤ective at solving large agency problems, such as strategy choice, but smaller issues such

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Metadata

Authors
Edmans, A., Gabaix, X., & Landier, A.
Venue
Review of Financial Studies
Publisher
Oxford University Press (OUP)
Published
2008-12-24
Volume
22
Issue
12
Pages
4881-4917
ISSN
  • 0893-9454 (ISSN-L)
  • 1465-7368
DOI
10.1093/rfs/hhn117
OpenAlex
W2063503639
Cited by
559
References
57
FWCI
111.89
Type
journal article
Language
en
Open access
green

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CoChat. (2026). Citation check: A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium. https://app.cochat.ai/papers/10.1093/rfs/hhn117
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Edmans, A., Gabaix, X., & Landier, A. (2009). A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium. Review of Financial Studies. https://doi.org/10.1093/rfs/hhn117

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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).

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