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Managerial Turnover in a Changing World

Listed author(s):
  • Daniel F. Garrett
  • Alessandro Pavan

We develop a dynamic theory of managerial turnover in a world in which the quality of the match between a firm and its managers changes stochastically over time. Shocks to managerial productivity are anticipated at the time of contracting but privately observed by the managers. Our key positive result shows that the firm's optimal retention decisions become more permissive with time. Our key normative result shows that, compared to what is efficient, the firm's contract induces either excessive retention at all tenure levels or excessive firing at the early stages of the relationship, followed by excessive retention after sufficiently long tenure.

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File URL: http://dx.doi.org/10.1086/668836
Download Restriction: Access to the online full text or PDF requires a subscription.

File URL: http://dx.doi.org/10.1086/668836
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 120 (2012)
Issue (Month): 5 ()
Pages: 879-925

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Handle: RePEc:ucp:jpolec:doi:10.1086/668836
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  13. Moldovanu, Benny & Dizdar, Deniz & Gershkov, Alex, 2011. "Revenue maximization in the dynamic knapsack problem," Theoretical Economics, Econometric Society, vol. 6(2), May.
  14. Daniel Garrett & Alessandro Pavan, 2014. "Dynamic Managerial Compensation: On the Optimality of Seniority-based Schemes," Discussion Papers 1579, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. David McAdams, 2011. "Performance and Turnover in a Stochastic Partnership," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 107-142, November.
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  21. Daniel Garrett & Alessandro Pavan, 2009. "Dynamic Managerial Compensation: A Mechanism Design Approach," 2009 Meeting Papers 375, Society for Economic Dynamics.
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