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Seeking Alpha - Excess Risk Taking and Competition for Managerial Talent

Author

Listed:
  • Viral Acharya

    (New York University)

  • Marco Pagano

    (University of Naples "Federico II" and EIEF)

  • Paolo Volpin

    (City University London)

Abstract

We present a model where firms compete for scarce managerial talent ("alpha") and managers are risk-averse. When managers cannot move across firms after being hired, employers learn about their talent, allocate them efficiently to projects and provide insurance to low-quality managers. When instead managers can move across firms, firm-level coinsurance is no longer feasible, but managers may self-insure by switching employer to delay the revelation of their true quality. However this results in inefficient project assignment, with low- quality managers handling projects that are too risky for them. (JEL D62,G32, G38, J33)

Suggested Citation

  • Viral Acharya & Marco Pagano & Paolo Volpin, 2013. "Seeking Alpha - Excess Risk Taking and Competition for Managerial Talent," EIEF Working Papers Series 1303, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2016.
  • Handle: RePEc:eie:wpaper:1303
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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