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Monitoring, Moral Hazard and Turnover

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  • Jacek Rothert

    ()
    (Department of Economics, University of Texas at Austin)

Abstract

I study the effects of monitoring on turnover of executives, when the executives' early actions have permanent effects on future outcomes. I consider an infinite-horizon environment where the expectation about the potential successor's effort is endogenous. As a result, the incentive to replace the incumbent is endogenous. In a stationary Markov equilibrium the relationship between monitoring and turnover is hump-shaped. The model sheds light on dynamic agency problems when agent's initial effort has persistent effects, and on the role of reputation in models with endogenous turnover.

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File URL: https://sites.google.com/site/jacekrothert/research/rothert-monitoring.pdf
File Function: Revised version, 2012
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Bibliographic Info

Paper provided by The University of Texas at Austin, Department of Economics in its series Department of Economics Working Papers with number 130124.

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Length: 32 pages (w/o appendix)
Date of creation: Nov 2009
Date of revision: Sep 2012
Handle: RePEc:tex:wpaper:130124

Contact details of provider:
Postal: Austin, Texas 78712
Phone: +1 (512) 471-3211
Fax: +1 (512) 471-3510
Email:
Web page: http://www.utexas.edu/cola/depts/economics/
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Related research

Keywords: learning; reputation; political instability; CEO turnover; principal-agent;

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References

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  18. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity, and the Timing of Attacks," Econometrica, Econometric Society, vol. 75(3), pages 711-756, 05.
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  22. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
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