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| Author: | Hayes, R. M. Schaefer, S. |
| Title: | CEO pay and the Lake Wobegon effect |
| Journal: | Journal of Financial Economics
2009 : NOV, VOL 94:2, 280-290 |
| Index terms: | chief executive officers asymmetric information signaling |
| Language: | eng |
| Abstract: | The "Lake Wobegon Effect" is said to cause the rising of CEO pay. It is also said that the effect is caused by the fact that no company is willing to admit that it has a CEO who's below average and therefore does not allow its CEO to pay package to lag market expectations. A game-theoretic model of the "Lake Wobegon Effect" is developed, where the wage of the CEO may signal the match surplus and thus affect the firm value. The equilibria of the model is compared to a full-market information case, and conditions under which equilibrium wages are distorted upward. |
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