Question
2. The contracting view of CEO pay assumes that pay is used by shareholders to solve an agency problem, so that the CEO acts in
2.
The contracting view of CEO pay assumes that pay is used by shareholders to solve an agency problem, so that the CEO acts in the best interests of shareholders. What is meant by the agency problem in this context and how might contracts help solve it? (You may use a simple model to illustrate you answer.) What does the evidence presented in Bertrand and Mullainathan (2001) "Are CEOs rewarded for luck? The ones without principals are," teach us about the effectiveness of CEO compensation packages in helping solve such agency problems. Explain in detail their empirical approach and main findings.
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