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A simulation study of managerial compensation

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A computational economics model of managerial compensation is presented. Risk-averse managers are simulated, and shown to adopt more risk-taking under the influence of stock options. It is also shown that stock options can both help a new entrant compete in an established market; and can help the incumbent firm fight off competition by promoting new exploration and risk-taking. In the case of the incumbent, the stock options are shown to be most effective when introduced as a response to the arrival of a new entrant, rather than used as a standard part of the compensation package. (author's abstract) ; Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"

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Brian Sallans, Alexander Pfister, Georg Dorffner

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