Korpeoglu, CG;
Spear, S;
(2017)
A Theory of Managerial Compensation and Taxation with Endogenous Risk.
Economic Theory Bulletin
, 6
pp. 81-100.
10.1007/s40505-017-0125-4.
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Abstract
We study the impact of endogenous shocks driven by collective actions of managers. We analyze how such endogenous shocks impact social welfare by employing an overlapping-generations model. We first prove that the competitive equilibrium allocation is suboptimal because of the externalities in managers’ wages and in equity market. We establish that a socially optimal allocation can be achieved if the planner imposes wage taxes (or subsidies) on managers and equity taxes. Our results help provide an alternative explanation as to why managers are compensated and taxed differently than other workers. We then extend the model by incorporating unobservable actions for managers and show that a second-best allocation can be implemented if the planner imposes equity taxes.
| Type: | Article |
|---|---|
| Title: | A Theory of Managerial Compensation and Taxation with Endogenous Risk |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1007/s40505-017-0125-4 |
| Publisher version: | https://doi.org/10.1007/s40505-017-0125-4 |
| Language: | English |
| Additional information: | This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. |
| Keywords: | Endogenous uncertainty, Social welfare, Externality, Overlapping generations |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/1575720 |
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