Executive compensation: a calibration approach |
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| Authors: | Joseph G Haubrich Ivilina Popova |
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| Institution: | (1) Research Department, Federal Reserve Bank of Cleveland, Cleveland, OH 44101-1387, USA (e-mail: jhaubrich@clev.frb.org), US;(2) Krannert Graduate School of Management, Purdue University, West Lafayette, IN 47907-1310, USA, US |
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| Abstract: | Summary. We use a version of the Grossman and Hart principal-agent model with 10 actions and 10 states to produce quantitative predictions for executive compensation. Performance incentives derived from the model are compared with the performance incentives
of 350 firms chosen from a survey by Michael Jensen and Kevin Murphy. The results suggest both that the model does a reasonable
job of explaining the data and that actual incentives are close to the optimal incentives predicted by theory.
Received: August 12, 1997; revised version: October 27, 1997 |
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| Keywords: | and Phrases: Calibration Executive compensation Principal-agent |
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