Document Type

Article

Publication Date

4-7-2015

Keywords

Executive Pay, Substitution Effects

Abstract

The pay of CEOs and other top executives has risen disproportionately relative to other earnings. We provide a supply-side explanation based on utility theory using directionally bounded utility functions. As overall income levels have grown, the amount of compensation required to induce top executives to sacrifice a quiet life has risen. We show that directionally bounded utility functions predict a general rise in compensation for stress. More importantly, such utility functions can be used to explain why the CEO pay ratio has risen at an increasing rate, something which other approaches have difficulty explaining.

Publication Title

Theoretical Economics Letters

Volume

5

First Page

238

Last Page

245

Required Publisher's Statement

Copyright © 2015 by authors and Scientific Research Publishing Inc.

Subjects - Topical (LCSH)

Executives--Salaries, etc.--Mathematical models; Utility theory; Substitution (Economics)

Genre/Form

articles

Type

Text

Rights

Copying of this document in whole or in part is allowable only for scholarly purposes. It is understood, however, that any copying or publication of this document for commercial purposes, or for financial gain, shall not be allowed without the author’s written permission.

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Language

English

Format

application/pdf

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