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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Identification Number : 10.1007/s00199-022-01440-6


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
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 21 Apr 2023 07:53
Last Modified: 21 Apr 2023 07:53
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