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Mortal Managers and Long-Term Goals: An Impossibility Result

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  • Carlos Alberto Mello-e-Souza

Abstract

This article examines decision myopia under effort and risk neutrality. An infinite, non-overlapping sequence of mortal managers is selected and their performance evaluated. Contracts admit premature termination. Plant condition depends on maintenance, which induces an interstage linkage in production. When ability and action are imprecisely known by employers, no contract achieves the first-best outcome. Furthermore, if the manager discounts less than the owners, inefficiency is partially due to moral hazard, which resembles myopia. Optimal contracts infer ability and motivate behavior via manipulation of wage schedules and tenure guidelines.

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  • Carlos Alberto Mello-e-Souza, 1993. "Mortal Managers and Long-Term Goals: An Impossibility Result," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 313-327, Autumn.
    • Handle: RePEc:rje:randje:v:24:y:1993:i:autumn:p:313-327
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    Cited by:

    1. Bernard Sinclair-Desgagné, 1999. "Remarks on Environmental Regulation, Firm Behavior and Innovation," CIRANO Working Papers 99s-20, CIRANO.

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