Career Concerns and Product Market Competition
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https://doi.org/10.1111/jems.12133 |
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Title
Career Concerns and Product Market CompetitionAuthor (s)
Date
2016-04-27Publisher
WileyISSN
1058-6407Bibliographic citation
FERIOZZI, Fabio. Career Concerns and Product Market Competition. Journal of Economics & Management Strategy, 2016, vol. 25, no 2, p. 370-399.Type
info:eu-repo/semantics/articlePublisher version
https://onlinelibrary.wiley.com/doi/full/10.1111/jems.12133Version
info:eu-repo/semantics/publishedVersionAbstract
This paper studies the effect of increased competition in the product market on managerial incentives. I propose a simple model of career concerns where firms are willing to pay for managerial talent to reduce production ... [+]
This paper studies the effect of increased competition in the product market on managerial incentives. I propose a simple model of career concerns where firms are willing to pay for managerial talent to reduce production costs, but also to subtract talented executives from competitors. This second effect is privately valuable to firms, but is socially wasteful. As a result, equilibrium pay for talent can be inefficiently high and career concerns too strong. Explicit incentive contracts do not solve the problem, but equilibrium pay is reduced if managerial skills have firm-specific components, or if firms are heterogeneous. In this second case, managers are efficiently assigned to firms, but equilibrium pay reflects the profitability of talent outside the efficient allocation. The effect of increased competition is ambiguous in general, and depends on the profit sensitivity to cost reductions. This ambiguity is illustrated in two examples of commonly used models of imperfect competition. [-]
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Journal of Economics and Management Strategy, 2016, 25, 2Rights
©2015 Wiley Periodicals, Inc
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