We develop a stylized model of efficient contracting in which firms compete for CEOs. The optimal contracts are designed to retain and insure CEOs. The retention motive explains pay-for-luck in executive compensation, while the insurance feature explains asymmetric pay-for-luck. We show that the...

Puzzling associations between low levels of ownership concentration and CEO pay practices such as pay-for-luck, a low pay-performance sensitivity, a more asymmetric pay-performance relation, and high salaries, have been documented. They have been interpreted as evidence that CEO pay is not set...

We present a model of efficient contracting with endogenous matching and limited monitoring in which firms compete for CEOs. The model explains the association between limited monitoring and CEO pay practices such as pay-for-luck, high salaries, a low pay-performance sensitivity, and a more...

We develop a stylized model of efficient contracting with matching between firms and managers with state-contingent reservation utility. We show that the optimal contract is designed to retain and insure the manager. The retention motive explains pay-for-luck in executive compensation, while the...

The paper presents a theory of optimal transparency in the nancial system when nancial institutions have short-term liabilities and are exposed to rollover risk. Our analysis indicates that transparency enhances the stability of the - nancial system during crises but may have a destabilizing...

We use a comparative approach to study the incentives provided by dierent types of compensation contracts, and their valuation by risk averse managers, in a fairly general setting. We show that concave contracts tend to provide more incentives to risk averse managers, while convex contracts tend...

We propose a new continuous-time principal-agent model to study the optimal timing of stock-based incentives, when the effects of managerial actions materialize with a lag and are only progressively understood by shareholders. On the one hand, early contingent compensation hedges the manager...

In a moral hazard setting with a performance additive in effort and a symmetrically distributed noise term, I show that compensation contracts which are convex in performance are suboptimal when the agent has mean-variance preferences. With step contracts, I show that sticks are more efficient...

It is established that the standard principal-agent model cannot explain the structure of commonly used CEO compensation contracts if CRRA preferences are postulated. However, we demonstrate that this model has potentially a high explanatory power with preferences with decreasing relative risk...

This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically, even...