Design and Justify an Optimal Compensation Scheme to Reward Bank CEO’s (2500words) i) Study the principal-agent theory to explain the key requirements that an optimal pay-contract should possibly meet and ii) Apply this to the financial sector in order to come up with an efficient compensation contract for bank CEO’s. Introduction The 2008 collapse of Lehman Brothers precipitated the sub-prime crisis‚ the collapse of major banks and a global economic crisis that resulted in a worldwide recession
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rejected warnings from whistle-blower John Jack‚ costs escalated and components of houses were downgraded without Navy approval. Navy couldn’t get documentation out of American Eagle‚ Navy didn’t act quickly on information from John Jack. Principal-agent theory. In this time of ever more scarce government resources‚ the idea that one level of government can mandate the activities and therefore resource usage of another may seem counter-intuitive. Taken together with the politics-administration dichotomy
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Affected by contracts i. Behavior of managers effected 4. Agency Costs a. Sum of i. Monitoring expenditures by the principal ii. Bonding expenditures by the agent iii. Residual loss b. Includes principal – agent relationship and cooperative effort c. Most literature focuses on how to structure contracts between principal and agent to minimize agency costs (maximize principals welfare) 5. Some General Comments on the Definition of the Firm a. Legal fictions which serve as a nexus for a set
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agency relationship is a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent. If both parties to the relationship are utility maximizers and they may have divergent goals and objectives‚ and there is good reason to believe that the agent will not always act in the best interests of the principal (Jensen‚ Michael C.‚ and William H. Meckling. "Theory
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required‚ they are required precisely because people are motivated by things other than money. Self-interest does not mean that people have no altruistic motives. And altruism‚ the concern for the well-being of others‚ does not make a person a perfect agent who does the bidding of others. This means that agency problems cannot be solved by instilling greater altruism in people (even if we could do so). I also discuss the universal tendency of people to behave in non-rational ways. Though they are Resourceful
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for the Social Scientist. 2nd Ed • WSC Proceedings: Introductory Tutorials (http://www.informs-sim.org/) • Course software: AnyLogic (xjTek) – AnyLogic related resources • Andrei Borshchev: The Big Book of AnyLogic (url) • Nathaniel Osgood: Agent-Based Modeling for Healthcare Policy (url) – Requires some basic Java programming skills... • G54SIM Lab 2: Introduction to Java for AnyLogic • Sierra and Bates (2009). Head First Java. 2nd Ed • The New Boston: Java for Beginners (url)
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Through regulating the procedure of accounting‚ they can help to resolve the outcomes and improve the market conditions. (Gaffikin 2005) According to agency theory‚ the connection between owners and managers are known as principal-agent relationship. The manager as the agent will acts on behalf of the owner (principal) to achieve the principal’s goals. Atkinson and Feltham
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In 1979‚ the first class action lawsuit was filed because of the Agent Orange side effects. Unfortunately‚ there was little progress for the Agent Orange side effects sufferers until a judge (Jack Weinstein) assigned to the case in 1983 put it on a fast track to settlement. In 1985‚ an out of court settlement‚ between the Vietnam Veterans and the chemical manufactures‚ created a fund for Agent Orange side effect sufferers (Agent Orange Lawsuits). However‚ the $180 million settlement fund was completely
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ECGI European Corporate Governance Institute Finance Working Paper No. 39/2004 Negotiation‚ Organization and Markets Harvard University Working Paper No. 04-26 Agency Costs of Overvalued Equity Michael C. Jensen Harvard Business School; The Monitor Company; Social Science Electronic Publishing (SSEP)‚ In. This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection at: http://ssrn.com/abstract=480421 MICHAEL C. JENSEN April 2004
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DUTIES OF AGENT TO PPRINCIPAL Agent’s duty in conducting principal’s business 164. An agent is bound to conduct the business of his principal according to the directions given by the principal‚ or‚ in the absence of any such directions‚ according to the custom which prevails in doing business of the same kind at the place where the agent conducts the business. When the agent acts otherwise‚ if any loss be sustained‚ he must make it good to his principal‚ and‚ if any profit accrues‚ he must account
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