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Monitoring, Moral Hazard and Turnover

  • Jacek Rothert

    ()

    (Department of Economics, University of Texas at Austin)

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
Download Restriction: no

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
Web page: http://www.utexas.edu/cola/depts/economics/
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  1. Phelan, Christopher, 2006. "Public trust and government betrayal," Journal of Economic Theory, Elsevier, vol. 130(1), pages 27-43, September.
  2. Leonardo Martinez, 2008. "A theory of political cycles," Working Paper 05-04, Federal Reserve Bank of Richmond.
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  15. Edmans, Alex & Gabaix, Xavier & Sadzik, Tomasz & Sannikov, Yuliy, 2010. "Dynamic Incentive Accounts," Working Papers 10-19, University of Pennsylvania, Wharton School, Weiss Center.
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  17. 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.
  18. Cheng Wang, 2005. "Termination of Dynamic Contracts in an Equilibrium Labor Market Model," 2005 Meeting Papers 743, Society for Economic Dynamics.
  19. George-Marios Angeletos & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks," Discussion Papers 1497, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Chris Edmond, 2007. "Information Manipulation, Coordination and Regime Change," Working Papers 07-25, New York University, Leonard N. Stern School of Business, Department of Economics.
  21. Campos, Nauro F & Karanasos, Menelaos G., 2007. "Growth, Volatility and Political Instability: Non-Linear Time-Series Evidence for Argentina, 1896–2000," IZA Discussion Papers 3087, Institute for the Study of Labor (IZA).
  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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