research article : On the efficiency of markets for managers

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research article : On the efficiency of markets for managers

Author Info

Ján Zábojnik () (Marshall School of Business, University of Southern California, Los Angeles, CA 90089, USA)

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Jan Zabojnik

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.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 18 (2001)
Issue (Month): 3 ()
Pages: 701-710
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Handle: RePEc:spr:joecth:v:18:y:2001:i:3:p:701-710

Note: Received: March 18, 1997; revised version: April 19, 2000
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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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