Document Type
Discussion Paper
Publication Date
7-1-1995
CFDP Number
1107
CFDP Revision Date
1997-02-01
CFDP Pages
26
Abstract
We survey recent theoretical research on the effects of short-term share-price based marginal incentive schemes. Such schemes can induce inefficient managerial behaviour in both hidden action and hidden type contexts. These problems arise from informational asymmetries: managers take actions to manipulate the information flow rather than to maximize firm value. More generally, imperfect transmission of information between managers and shareholders or between managers of different firms can lead to similar distortions even when the parties’ interests are aligned.
Recommended Citation
Grant, Simon; King, Stephen; and Polak, Ben, "Information Externalities, Share-Price Based Incentives and Managerial Behaviour" (1995). Cowles Foundation Discussion Papers. 1350.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1350