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On the efficiency of markets for managers

Author

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  • Ján Zábojnik

    (Marshall School of Business, University of Southern California, Los Angeles, CA 90089, USA)

Abstract

This paper examines the efficiency of the outside labor market in inducing optimal managerial behavior in the presence of learning. It shows that the incentives provided by the market can be more efficient than the original analysis of Holmström [6] would suggest. Moreover, under a mild additional assumption, the existence of an $\varepsilon $-efficient equilibrium can be guaranteed if a manager is patient. This result supports Fama's [4] original idea that the outside labor market can be efficient in disciplining top managers. These results also suggest that the empirically documented low levels of explicit incentives for managers might be due to the presence of implicit incentives provided by the outside market.

Suggested Citation

  • Ján Zábojnik, 2001. "On the efficiency of markets for managers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 701-710.
    • Handle: RePEc:spr:joecth:v:18:y:2001:i:3:p:701-710
    Note: Received: March 18, 1997; revised version: April 19, 2000
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    More about this item

    Keywords

    Managerial labor market; Career concerns; Efficiency.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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