Hayes, Rachel M.; Schaefer, Scott - In: Journal of Financial Economics 94 (2009) 2, pp. 280-290
The "Lake Wobegon Effect," which is widely cited as a potential cause for rising CEO pay, is said to occur because no firm wants to admit to having a CEO who is below average, and so no firm allows its CEO's pay package to lag market expectations. We develop a game-theoretic model of this...