Managerial Turnover in a Changing World

53 Pages Posted: 1 Jun 2010

See all articles by Daniel Ferguson Garrett

Daniel Ferguson Garrett

University of Toulouse 1 - Toulouse School of Economics (TSE)

Alessandro Pavan

Northwestern University

Date Written: May 1, 2010

Abstract

We characterize a firm's profit-maximizing turnover policy in an environment where managerial productivity changes stochastically over time and is the managers' private information. Our key positive result shows that the productivity level that the firm requires for retention declines with the manager's tenure in the firm. Our key normative result shows that, compared to what is efficient, the profit-maximizing policy either induces excessive retention (i.e., inefficiently low turnover) at all tenure levels, or excessive firing at the early stages of the relationship followed by excessive retention after sufficiently long tenure.

Keywords: managerial turnover, termination clauses, dynamic mechanism design, adverse selection, moral hazard

JEL Classification: D82

Suggested Citation

Garrett, Daniel Ferguson and Pavan, Alessandro, Managerial Turnover in a Changing World (May 1, 2010). Available at SSRN: https://ssrn.com/abstract=1618954 or http://dx.doi.org/10.2139/ssrn.1618954

Daniel Ferguson Garrett

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Alessandro Pavan (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208-2600
United States
847-491-8266 (Phone)
847-491-7001 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
60
Abstract Views
752
rank
436,542
PlumX Metrics