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Dispersed information and CEO incent...

Schneemeier, Jan Reinhard.

Dispersed information and CEO incentives.

Record Type:	Electronic resources : Monograph/item
Title/Author:	Dispersed information and CEO incentives.
Author:	Schneemeier, Jan Reinhard.
Description:	92 p.
Notes:	Source: Dissertation Abstracts International, Volume: 76-12(E), Section: A.
Notes:	Adviser: Tarek A. Hassan.
Contained By:	Dissertation Abstracts International76-12A(E).
Subject:	Economics.
Online resource:	http://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=3714056
ISBN:	9781321910896

Dispersed information and CEO incentives.
Schneemeier, Jan Reinhard.

Dispersed information and CEO incentives. - 92 p.

Source: Dissertation Abstracts International, Volume: 76-12(E), Section: A.

Thesis (Ph.D.)--The University of Chicago, 2015.

The present thesis is concerned with the idea that a lot of information about economic variables is dispersed among individual agents. In the first part, I measure the social cost of stock-based compensation schemes in a model in which the CEO learns from market prices. In my model, all agents commit a small correlated error when forming their expectations about future productivity. The equilibrium stock price thus aggregates private information with noise. I show that a stock-based compensation scheme leads the CEO to overuse the price information by a factor of three, which in turn makes the excess return and investment growth excessively volatile. I calibrate a DSGE model that embeds this mechanism, and estimate an implied welfare loss of 0.55% of permanent consumption. Surprisingly, if households were given the choice within this model of preserving the status quo or forcing the CEO to ignore all price information, they would choose the latter. In the second part (joint with D. Schreindorfer), we study the role of time-varying stock return volatility in a consumption and portfolio choice problem for a life-cycle investor facing short-selling and borrowing constraints. Faced with a benchmark investment strategy that conditions on age and wealth only, we find that an investor is willing to pay a fee of up to 1% - 1.5% of total life time consumption in order to optimally condition on volatility. Tilts in the optimal asset allocation in response to volatility shocks are considerably more pronounced than tilts in response to wealth shocks, and almost as important as life-cycle effects. Lastly, we find that the correlation between volatility and permanent labor income shocks may explain the low equity share of young households in the data.

ISBN: 9781321910896Subjects--Topical Terms:

175999
Economics.

Dispersed information and CEO incentives.
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500 $a Adviser: Tarek A. Hassan.
502 $a Thesis (Ph.D.)--The University of Chicago, 2015.
520 $a The present thesis is concerned with the idea that a lot of information about economic variables is dispersed among individual agents. In the first part, I measure the social cost of stock-based compensation schemes in a model in which the CEO learns from market prices. In my model, all agents commit a small correlated error when forming their expectations about future productivity. The equilibrium stock price thus aggregates private information with noise. I show that a stock-based compensation scheme leads the CEO to overuse the price information by a factor of three, which in turn makes the excess return and investment growth excessively volatile. I calibrate a DSGE model that embeds this mechanism, and estimate an implied welfare loss of 0.55% of permanent consumption. Surprisingly, if households were given the choice within this model of preserving the status quo or forcing the CEO to ignore all price information, they would choose the latter. In the second part (joint with D. Schreindorfer), we study the role of time-varying stock return volatility in a consumption and portfolio choice problem for a life-cycle investor facing short-selling and borrowing constraints. Faced with a benchmark investment strategy that conditions on age and wealth only, we find that an investor is willing to pay a fee of up to 1% - 1.5% of total life time consumption in order to optimally condition on volatility. Tilts in the optimal asset allocation in response to volatility shocks are considerably more pronounced than tilts in response to wealth shocks, and almost as important as life-cycle effects. Lastly, we find that the correlation between volatility and permanent labor income shocks may explain the low equity share of young households in the data.
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