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This is sometimes called the Lake Wobegon effect. The idea is that the pay of a CEO compared to their peers is a signal of the quality of a CEO, so everyone wan
by paulgb 7y ago
This is sometimes called the Lake Wobegon effect. The idea is that the pay of a CEO compared to their peers is a signal of the quality of a CEO, so everyone wants to pay their CEO above average, creating a vicious cycle of upward CEO salaries.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=966332 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=966332
I'm not sure how true it is, but the game theory makes sense to me. The alternative, that CEOs are correctly priced by the market but that correct price has grown by 10x in half a century, actually seems less believable to me.
- leetcrew 7y agothere's a third alternative: CEOs are currently priced by the market but were underpriced in 1978. not sure I believe that, but it's a possibility.
- knodi123 7y ago> This is sometimes called the Lake Wobegon effect. Due to a humorous quote from Garrison Keillor's Prairie Home Companion show: "Well, that's the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average."
- imtringued 7y agoIt is possible that we now have bigger companies that can afford to pay their CEOs more.