Managerial Compensation and the Cost of Moral Hazard

2000 ◽  
Vol 41 (3) ◽  
pp. 669-719 ◽  
Author(s):  
Mary M. Margiotta ◽  
Robert A. Miller
Keyword(s):  
Moral Hazard ◽  
Managerial Compensation ◽  
The Cost

scholarly journals Managerial Compensation and Corporate Bond Yield with Active Shareholders

2017 ◽  
Vol 9 (6) ◽  
pp. 111
Author(s):  
Vittoria Cerasi ◽  
Sonja Daltung
Keyword(s):  
Moral Hazard ◽  
Financial Markets ◽  
Pay For Performance ◽  
Corporate Bond ◽  
Managerial Compensation ◽  
Cost Of Debt ◽  
Bond Yield ◽  
Monitoring Effort ◽  
The Cost ◽  
Managerial Pay

In this paper we show how a greater pay-for-performance in managerial compensation may reduce the cost of corporate debt. The model points to the relation between the bonus and the monitoring effort by shareholders as key to reduce the cost of debt and hence increase the value of the company. Incentivizing the manager with a bonus related to the company’s performance, provided that the information is disclosed to investors, not only reduces the moral hazard between managers and share-holders, but more importantly between shareholders and bond-holders. The model predicts i) a lower corporate bond yield when there is disclosure of managerial pay-performance to financial markets, and ii) an increasing degree of managerial pay-for-performance with company’s leverage.

The role of ex ante regulations in addressing problems of moral hazard in agricultural insurance

2002 ◽  
Vol 62 (2) ◽  
pp. 103-116 ◽  
Author(s):  
Calum G. Turvey ◽  
Michael Hoy ◽  
Zahirul Islam
Keyword(s):  
Moral Hazard ◽  
Crop Production ◽  
Insurance Coverage ◽  
Agricultural Insurance ◽  
Agricultural Producers ◽  
Growing Seasons ◽  
Input Use ◽  
The Cost ◽  
Input Level

We develop a theoretical model of input use by agricultural producers who purchase crop insurance, and thus may engage in moral hazard. Through simulations, our findings show a combination of partial insurance coverage and partial monitoring of inputs may reduce substantially the problems associated with moral hazard. The minimum level of input use that must be required by regulation is determined to be substantially lower than the optimal or actual input level chosen by producers. Because the use of inputs for crop production occurs in many stages over the pre‐planting, planting, and growing seasons, only a minimal input requirement is needed. Thus, the cost of implementing such a regulation can be kept much lower than would be the case for a regulation of complete monitoring of input usage.

scholarly journals The Cost of Moral Hazard and Limited Liability in the Principal-Agent Problem

2012 ◽  
Author(s):  
Felipe Balmaceda ◽  
Santiago Balseiro ◽  
José Rafael Correa ◽  
Nicolas E. Stier-Moses
Keyword(s):  
Moral Hazard ◽  
Limited Liability ◽  
Principal Agent ◽  
Principal Agent Problem ◽  
The Cost

scholarly journals Investment Timing and Incentive Costs*

2019 ◽  
Vol 33 (1) ◽  
pp. 309-357 ◽  
Author(s):  
Sebastian Gryglewicz ◽  
Barney Hartman-Glaser
Keyword(s):  
Moral Hazard ◽  
Real Option ◽  
Natural Source ◽  
Investment Timing ◽  
Editorial Decision ◽  
Incremental Form ◽  
The Cost

Abstract We analyze how the costs of smoothly adjusting capital, such as incentive costs, affect investment timing. In our model, the owner of a firm holds a real option to increase a lumpy form of capital and can also smoothly adjust an incremental form of capital. Increasing the cost of incremental capital can delay or accelerate investment in lumpy capital. Incentive costs due to moral hazard are a natural source of costs for the accumulation of incremental capital. When moral hazard is severe, delaying investment in lumpy capital is costly, and overinvesting relative to the first-best case is optimal. Received January 24, 2017; editorial decision March 15, 2019 by Editor Itay Goldstein.

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