Identifying and testing testing generalized models of moral hazard of managerial compensation

This paper seeks to answer two questions: in models of executive compensation how important is hidden information relative to moral hazard, and how biased are empirical measures of moral hazard in econometric models that do not account for hidden information. An analytical stage of this paper exploit restrictions from the theory of optimal contracting to identify hidden information and differentiate its effects from moral hazard. An empirical stage uses and develops nonparametric and numerical methods to quantify the importance of the various factors identified in the first stage using a large longitudinal data set on executives.