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Managerial Labor Market Competition and Incentive Contracts

  • Series
    PhD Lunch Seminars
  • Speaker
    Bo Hu (VU University Amsterdam)
  • Field
    Organizations and Markets
  • Location
    Erasmus University Rotterdam, Tinbergen Building, Room H09-02
  • Date and time

    November 27, 2018
    13:00 - 14:00

This paper assesses the impact of managerial labor market competition on executive incentive contracts. I develop a dynamic contracting framework that embeds the moral hazard problem into an equilibrium search environment. The competition for executives increases total compensation and generates a new source of incentives, called labor market incentives, which substitutes for performance-based incentives (e.g. bonus, stocks, options, etc.). The model is estimated using a newly assembled dataset on job turnovers for executives from U.S. publicly listed firms. The structural estimates show that the model is capable of explaining and predicting the empirical puzzles that executives of larger firms experience higher compensation growth and receive higher performance-based incentives.