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Bianchi, Milo
, Dana, Rose-Anne and Jouini, Elyes
(2022)
Equilibrium CEO Contract with Belief Heterogeneity.
Economic Theory, vol. 74.
pp. 505-546.
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Abstract
Consider a rm owned by shareholders with heterogeneous beliefs and run by a manager who chooses random production plans. Shareholders do not observe the chosen plan but only its realization. The nancial market consists of assets contingent on production realizations. A contract for the manager species her compensation as a function of the rms production and possibly some restrictions to trade in the nancial market. Shareholders are unrestricted. We dene a concept of equilibrium between the manager and shareholders such that the equilibrium production plan is unanimously preferred by the manager and the shareholders, markets clear and the manager has no incentive to cheat. We rst analyze the properties of such equilibria and in particular show that the contract should restrict the manager from trading. We next provide a framework where such equilibria exist. We lastly study the properties of equilibrium compensations when shareholders have beliefs that can be ranked in terms of optimism towards the equilibrium plan. Specic attention is given to their
departure from linear compensations.
| Item Type: | Article |
|---|---|
| Language: | English |
| Date: | September 2022 |
| Refereed: | Yes |
| Uncontrolled Keywords: | heterogeneous beliefs, asymmetric information, manager-shareholders equi-, librium. |
| JEL Classification: | D24 - Production; Cost; Capital and Total Factor Productivity; Capacity D51 - Exchange and Production Economies D70 - General G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure G34 - Mergers; Acquisitions; Restructuring; Corporate Governance |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Site: | UT1 |
| Date Deposited: | 21 Apr 2023 07:53 |
| Last Modified: | 21 Apr 2023 07:53 |
| OAI Identifier: | oai:tse-fr.eu:127020 |
| URI: | https://publications.ut-capitole.fr/id/eprint/45507 |
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Equilibrium CEO contract with belief heterogeneity. (deposited 21 Sep 2021 07:14)
- Equilibrium CEO Contract with Belief Heterogeneity. (deposited 21 Apr 2023 07:53) [Currently Displayed]
