Essays on Executive Compensation

I study executive compensation in various situations, including the cases where (i) CEOs have relative wealth concerns (RWCs); (ii)inside debt can be a part of an optimal contract; (iii) there are ambiguous information about firm value. The first chapter, "Relative Wealth Concerns and Executive compensation", studies the implications of RWCs on executive compensation. I first study the case in which a CEO's effort increases firm value without changing firm risk. In this case, RWCs will result in an increase in CEO incentives. This effect is larger if aggregate risk is higher, so RWCs can lead to a positive relation between CEO incentives and aggregate risk. CEOs with RWCs willingly risk exposure to aggregate shock to keep up with their peers. This help to reduce risk premium paid to the CEOs. As a result, RWCs can be beneficial to shareholders ' payoffs. I also provide a simple explanation for the pay-for-luck puzzle. I next examine the case in which the CEO's effort affects both the mean and variance of firm value. I show that RWCs can lead to a negative relation between CEOs ' risk-taking behavior and their incentives, which is consistent with some empirical evidence. Lastly, I show that RWCs render options preferable to stock where aggregate risk is much larger than idiosyncratic risk. The second chapter, "Inside Debt", is a coauthored paper with my advisor Alex Edmans. We justify the use o