Performance Pay
Risk Aversion, Performance Pay, and the Principal-Agent Problem Author(s): Joseph G. Haubrich Source: The Journal of Political Economy, Vol. 102, No. 2 (Apr., 1994), pp. 258-276 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/2138661 Accessed: 14/12/2010 04:55
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Risk Aversion, Performance Pay, and the Principal-Agent Problem
Joseph G. Haubrich
Federal Reserve Bank of Cleveland
This paper calculates numerical solutions to the principal-agent problem and compares the results to the stylized facts of CEO compensation. The numerical predictions come from parameterizing the models of Grossman and Hart and of Holmstrom and Milgrom. While the correct incentives for a CEO
Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=ucpress. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Political Economy.
http://www.jstor.org
Risk Aversion, Performance Pay, and the Principal-Agent Problem
Joseph G. Haubrich
Federal Reserve Bank of Cleveland
This paper calculates numerical solutions to the principal-agent problem and compares the results to the stylized facts of CEO compensation. The numerical predictions come from parameterizing the models of Grossman and Hart and of Holmstrom and Milgrom. While the correct incentives for a CEO