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Research dividends and interest income—grew more quickly than average wages, a reflection of the increasingly volatile state of earnings. CEOs who lead larger companies are taking bigger risks themselves. If such incentives were eliminated and replaced by fixed wages, the value of U.S. firms could be reduced by half in just eight years, the researchers argue. "Properly designed incentive- Two Takes on Exec Pay Do big executive compensation packages do more harm than good to a company's bottom line? To the economy itself? Two new studies come to different conclusions about these questions. Incentives and Market "Shocks." The most popular executive incen- tive—the stock option—has led to volatile swings, or "shocks," in the market, according to researchers John Donaldson and Mark Gion- noni of Columbia Business School and Natalia Gershun of the Lubin School of Business at Pace Univer- sity, both in New York City. When executive compensation is tied to company performance, as stock options are, CEOs may set unrealis- tic earnings expectations. These expectations, rather than business fundamentals, drive business cycles, say the researchers. The con- sequence of this vicious circle can be economic instability—much like the instability of today's markets. The paper, "Some Unpleasant General Equilibrium Implications of 48 BizEd NOVEMBER/DECEMBER 2009 Executive Incentive Compensation Contracts," is available on the Social Science Research Network. Incentives and Shareholder Wealth. While the study above finds the dark side of executive incentives, a study from Carnegie Mellon Uni- versity's Tepper School of Business in Pittsburgh, Pennsylvania, suggests that such incentives may actually build shareholder wealth. Tepper professors George-Levi Gayle and Robert Miller analyzed compensation and firm data for the aerospace, electronics, and chemical industries from 1944 to 1978 and 1993 to 2003. The researchers found that at those average-sized firms that maintained their size from 1944 to 2003, CEO pay increased by a fac- tor of 2.3—approximately equal to the growth rate of per capita national income over the same period. These findings undermine the argument that the earnings of high- ranking executives have skyrocketed compared to the general population, say the researchers. However, per capita nonwage income—such as based pay helps to discourage excessive risk-taking, and elimi- nating such compensation would undercut the critical role that it plays in ensuring the alignment of interests between shareholders and executives," says Miller. "Such a change would do serious harm to the fiscal health of corporations and the wealth of shareholders." "Has Moral Hazard Become a More Important Factor in Manage- rial Compensation?" is forthcoming in the American Economic Review. It also is available for download at www.comlabgames.com/ramiller/ AER.pdf. Whither Economics? Economics has long been somewhat of a chameleon on university campuses. In some institutions it's found in the business school; in others, the school of arts and sciences; in still others, the school of social sciences. But does its location affect the curricular emphasis of its doctoral program? Shane Sanders is an assistant pro- fessor of economics in the depart- ment of finance and economics at Nicholls State University's College of Business Administration in Thi- bodaux, Louisiana. He examined the curriculum vitae of 661 economics PhD candidates from 76 econom- ics departments, all entering the job