The Paradox of Insider Information and Moral Hazard

Joint with: George Gayle

This article investigates the paradox of insider information and moral hazard as it pertains to managerial compensation. Managers are paid to organize human resources under their command in creative ways to extract

more value to the firm. This paper shows that there are indeed good empirical grounds for taking this source of hidden interest( Insider Information) quite seriously as a motivation for changes in managerial portfolios with respect to their own firms.We provide a theoretical framework that explains how these conflicting goals might be resolve within equilibrium.

For more information, contact Jere Behrman.