The DOI matches its Crossref record; 5 of the 5 references it cites were found in a registry or an index.
Sticks or Carrots? Optimal CEO Compensation when Managers Are Loss Averse
Open accessAbstract
This paper analyzes optimal executive compensation contracts when managers are loss averse. We calibrate a stylized principal‐agent model to the observed contracts of 595 CEOs and show that this model can explain observed option holdings and high base salaries remarkably well for a range of parameterizations. We also derive and calibrate the general shape of the optimal contract that is increasing and convex for medium and high outcomes and that drops discontinuously to the lowest possible payout for low outcomes. Finally, we identify the critical features of the loss‐aversion model that render optimal contracts convex.
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Cites
Prospect Theory: An Analysis of Decision under Risk
Kahneman, D., & Tversky, A. (1979) · Econometrica · doi:10.2307/1914185 · Cited by 48,524
Advances in prospect theory: Cumulative representation of uncertainty
Tversky, A., & Kahneman, D. (1992) · Journal of Risk and Uncertainty · doi:10.1007/bf00122574 · Cited by 15,467
(2000) · doi:10.1017/cbo9780511803475 · Cited by 2,987
Loss Aversion and Seller Behavior: Evidence from the Housing Market
Genesove, D., & Mayer, C. (2001) · The Quarterly Journal of Economics · doi:10.1162/003355301753265561 · Cited by 1,628
How Basic Are Behavioral Biases? Evidence from Capuchin Monkey Trading Behavior
Chen, M. K., Lakshminarayanan, V., & Santos, L. R. (2006) · Journal of Political Economy · doi:10.1086/503550 · Cited by 472
Cited by
Stocks as Lotteries: The Implications of Probability Weighting for Security Prices
Barberis, N., & Huang, M. (2008) · American Economic Review · doi:10.1257/aer.98.5.2066 · Cited by 1,544
Thirty Years of Prospect Theory in Economics: A Review and Assessment
Barberis, N. (2012) · SSRN Electronic Journal · doi:10.2139/ssrn.2177288 · Cited by 293
Metadata
- Authors
- DITTMANN, I., MAUG, E., & SPALT, O.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2010-11-09
- Volume
- 65
- Issue
- 6
- Pages
- 2015-2050
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2298962734
- Cited by
- 196
- References
- 5
- FWCI
- 79.91
- Type
- journal article
- Language
- en
- Open access
- green
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- DITTMANN, I., MAUG, E., & SPALT, O. (2010). Sticks or Carrots? Optimal CEO Compensation when Managers Are Loss Averse. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.2010.01609.x
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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.
