But Is It Myopia? Risk Aversion and the Efficiency of Stock-Based Managerial Incentives

In the managerial myopia literature the firm always faces some agency problem or other market imperfection. It is unclear whether the myopic behavior found in these models is due to stock-based incentives or the model's other market imperfections. This paper points out that stock incentives do not lead to myopia unless they result in more emphasis on the short-term than would occur under an optimal contract. The paper shows there is an arbitrarily large range of parameter values such that optimal contracting and traditional first-best standards come to conflicting conclusions with regard to whether equilibrium incentives result in myopia. JEL Classification Codes: G30, G31