Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent
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 too risky projects. The model has several empirical predictions and policy implications.
|Date of creation:||26 Apr 2012|
|Date of revision:||10 Apr 2015|
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