On the efficiency of markets for managers

Jan Zabojnik

Economic Theory, 2001, vol. 18, issue 3, 710 pages

Abstract: This paper examines the efficiency of the outside labor market in inducing optimal managerial behavior in the presence of learning. It shows that the incentives provided by the market can be more efficient than the original analysis of Holmström [6] would suggest. Moreover, under a mild additional assumption, the existence of an $\varepsilon $-efficient equilibrium can be guaranteed if a manager is patient. This result supports Fama's [4] original idea that the outside labor market can be efficient in disciplining top managers. These results also suggest that the empirically documented low levels of explicit incentives for managers might be due to the presence of implicit incentives provided by the outside market.

Keywords: Managerial labor market; Career concerns; Efficiency. (search for similar items in EconPapers)
JEL-codes: C72 D83 J30 (search for similar items in EconPapers)
Date: 2001-06-11
Note: Received: March 18, 1997; revised version: April 19, 2000
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