Abstract
Equity Based Incentives (EBIs) remain the dominant form of incentives in many developed and developing countries; and the timing of exercise of EBIs and the associated legal and economic ramifications have generated substantial debate. This article: a) critiques existing academic thought on information and exercise of employees' incentive contracts within the context of industry competition, b) shows how Equity-Based Incentives (EBIs) cause information asymmetry, and vice versa, c) introduces the optimal conditions for exercise of EBIs by 'insiders'. The analysis of optimal exercise of EBIs may help in formulation of appropriate policies for taxation of EBIs, regulation of securities markets, employee compensation and regulation of competition.
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