PAM_334_Fall_2008_Lecture_19 - PAM3340 Lecture19 Agenda:

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PAM 3340 Lecture 19 Agenda: Coasian analysis of I.T. Economics of I.T. Enforcement Executive compensation
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Coasian Analysis of Insider  Trading (con’t) Think in terms of property rights to  information , and how contracting can  solve  the problem Firms may  create restrictions  on  information through contracts with  employees Patents and copyrights are examples of  restrictions on information
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Coasian Analysis of Insider  Trading (con’t) General rule: Want to assign the rights  to information where their economic  value is the greatest : If value of the right to information is the  greatest within the firm , then no IT is  allowed If value of the right to information is  greatest with the manager , then IT is  allowed
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Legal Rule Common law allows insiders to trade  stock unless contract restricts them   the default rule is to allow trading.  This  holds today unless federal law restricts  Thus, a lot is left up to the details of  individual contracts ( i.e.  a very Coasian  approach)
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Economics of IT Enforcement Why is public enforcement of insider  trading necessary? Why not simply specify monetary  damages in contracts? 
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CEO Pay and Firm  Performance CEO pay can help solve the agency  problem between managers and owners CEO pay package is critical for  incentives of the CEO Conflict between CEO’s desires and  stockholders:
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This document was uploaded on 10/26/2011 for the course PAM 3340 at Cornell University (Engineering School).

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PAM_334_Fall_2008_Lecture_19 - PAM3340 Lecture19 Agenda:

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