Seeking Alpha: Excess Risk Taking and Competition for Managerial Talent
57 Pages Posted: 19 Mar 2011 Last revised: 26 Nov 2018
Date Written: May 17, 2016
We present a model where firms compete for scarce managerial talent ("alpha") and managers are risk-averse. When managers cannot move across firms after being hired, employers learn about their talent, allocate them efficiently to projects and provide insurance to low-quality managers. When instead managers can move across firms, firm-level coinsurance is no longer feasible, but managers may self-insure by switching employer to delay the revelation of their true quality. However this results in inefficient project assignment, with low-quality managers handling projects that are too risky for them.
Keywords: managerial talent, project allocation, insurance, mobility, turnover
JEL Classification: D62, G32, G38, J33
Suggested Citation: Suggested Citation