Sunday, May 03, 2009

Principle Agent Problem

Here is Warren Buffet explaining the principle agent problem in the context of executive salaries. But, as Megan McArdle explains, there does not seem to be a lot of support for the "agent capture" theory of excessive executive compensation.  We do not observe the predicted effects for recruiting outside CEOs or privately held companies. It may just be that CEO's are that (or close to that) valuable.  Especially if they are a proven commodity.  Here is a link to the Economist's report on the topic.

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