Apologies to Henry Manne....
22 January 2008
Editor, The Region
Federal Reserve Bank of Minneapolis
Dear Editor:
I very much enjoyed your interview with Eugene Fama (December 2007). But I wonder if Fama was somewhat inconsistent. When asked about principal-agent problems in corporations, he correctly pointed out that state statutes protecting corporations from hostile takeovers (and, hence, protecting incumbent managers from losing their jobs) strip away some market discipline that corporations would otherwise - and healthily - be subjected to.
But when asked about CEO compensation, Fama says that it would be excessive only if the compensation process gets "corrupted." But he adds that he doesn't "know of any solid evidence that the process was corrupted."
Does not anti-takeover legislation corrupt the process?
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, The Region
Federal Reserve Bank of Minneapolis
Dear Editor:
I very much enjoyed your interview with Eugene Fama (December 2007). But I wonder if Fama was somewhat inconsistent. When asked about principal-agent problems in corporations, he correctly pointed out that state statutes protecting corporations from hostile takeovers (and, hence, protecting incumbent managers from losing their jobs) strip away some market discipline that corporations would otherwise - and healthily - be subjected to.
But when asked about CEO compensation, Fama says that it would be excessive only if the compensation process gets "corrupted." But he adds that he doesn't "know of any solid evidence that the process was corrupted."
Does not anti-takeover legislation corrupt the process?
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Monday June 16, 2008 at 8:27am