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| Author: | Gervais, S. Goldstein, I. |
| Title: | The positive effects of biased self-perceptions in firms |
| Journal: | Review of finance
2007 : SEP, VOL. 11:3, p. 453-496 |
| Index terms: | mergers consolidation companies productivity industrial concentration Pareto law models |
| Language: | eng |
| Abstract: | This paper examines a firm in which the marginal productivity of agents' effort increases with the effort of others. It is shown that the presence of an agent overestimating his marginal productivity may make all agents better off, incl. the biased agent himself. This Pareto improvement is found even with compensation contracts set endogenously to maximize firm value. It is shown that the presence of a leader improves coordination, but self-perception biases can never be Pareto-improving when they affect the leader etc. |
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