This paper examines the determinants of stock option introduction as a part of CEO compensation in listed US firms during the 1994-2004 period. The results are consistent with agency costs and recruiting considerations, suggesting that firms do not adjust CEO compensation in order to address the ‘investment horizon’ problem. The findings also suggest that CEO stock option adoption is not necess...

Absenteeism is affected by the sickness benefit system. Countries with generous compensation during sick leaves also experience high numbers of sick leave. Sick leaves may vary over the business cycle due to unemployment disciplining effects or changes in labour force composition. The latter hypothesis maintains that sickness may be pro-cyclical due to employment of “marginal” workers with poor...

Piece Work Pay and Hourly Pay over the Cycle This paper investigates the relative cyclical behavior of the pay of piece workers and hourly paid workers. It uses a unique data set of blue-collar workers in British engineering between 1926 and 1966. The statistics are obtained from the payrolls of firms belonging to the Engineering Employers Federation (EEF). Roughly, the EEF accounted for one-th...

Contracts between Legal Persons Contract law and the economics of contract have, for the most part, developed independently of each other. In this essay, we briefly review the notion of a contract from the perspective of lawyer, and then use this framework to organize the economics literature on contract. The title, Contracts between Legal Persons, limits the review to that part of contract law...

The financial crisis renewed interest in the relation between pay-for-performance compensation and risk taking incentives. We examine whether paying top executives with options induces them to take more risk. To identify the causal effect of options, we exploit two distinct sources of variation in option compensation that arise from institutional features of multi-year grant cycles. We find tha...

On the Hidden Costs of Incentive Schemes By enriching a principal-agent model it is shown that the introduction of monetary incentives may reduce an agent’s motivation. In a first step, we allow for the possibility that some agents stick to unverifiable agreements. The larger the fraction of reliable agents, the lower powered will then be the optimal incentive scheme and fixed wages become opti...

Using a controlled experiment, we examine the role of nurture in explaining the stylized fact that women shy away from competition. Our subjects (students just under 15 years of age) attend publicly-funded single-sex and coeducational schools. We …nd robust di¤erences between the competitive choices of girls from single-sex and coed schools. Moreover, girls from single-sex schools behave more l...

Building Blocks in the Economics of Mandates The paper constructs an asymmetric information model to investigate the efficiency and equity cases for government mandated benefits. A mandate can improve workers' insurance, and may also redistribute in favour of more "deserving" workers. The risk is that it may also reduce output. The more diverse are free market contracts – separating the various...

Profit Sharing and Training We analyze the impact of profit sharing on the share of workers receiving training. An effect is plausible because: 1) profit sharing is a credible commitment by firms to reward firmspecific skills acquired by formal or informal training, 2) profit sharing may reduce turnover and increase the returns to training, 3) a common payment for the whole workforce leads to p...

After a merger, company officials face the challenge of making compensation schemes uniform and of redesigning teams with managers from companies with different incentives, work habits and recruiting methods. In this paper, we investigate the relationship between executive pay and performance after a merger by dissociating the respective influence of shifts, which occur in both compensation inc...