Managerial Turnover in a Changing World

Daniel Garrett and Alessandro Pavan

No 1490, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We characterize a firm's profit-maximizing turnover policy in an environment where managerial productivity changes stochastically over time and is the manager's private information. Our key positive result shows that the productivity level that the firm requires for retention declines with the manager's tenure in the firm. Our key normative result shows that, compared to what is efficient, the profit-maximizing policy either induces excessive retention (i.e., inefficiently low turnover) at all tenure levels, or excessive firing at the early stages of the relationship followed by excessive retention after sufficiently long tenure.

Keywords: managerial turnover; termination clauses; dynamic mechanism design; adverse selection; moral hazard (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2010-05-01
New Economics Papers: this item is included in nep-bec and nep-cta
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Citations: View citations in EconPapers (5)

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Journal Article: Managerial Turnover in a Changing World (2012)
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