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Optimal Managerial Remuneration and Firm-level Diversification

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  • Erlend Nier

Abstract

In a model that involves both moral hazard and hidden information on the part of the manger different remuneration schemes are discussed and the optimal contract between financial investor and manager is derived. Assuming the manager is risk-neutral and protected by limited liability, a benefit from diversification is shown to exist even though the projects which the manager develops are technologically unrelated and choices made on one project do not constrain the choices on any other project.

Suggested Citation

  • Erlend Nier, 1997. "Optimal Managerial Remuneration and Firm-level Diversification," FMG Discussion Papers dp269, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp269
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