Chasing Lemons: Competition for Talent Under Asymmetric Information

53 Pages Posted: 2 Mar 2015 Last revised: 23 Apr 2020

See all articles by Daniel Ferreira

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Radoslawa Nikolowa

Queen Mary, University of London

Multiple version iconThere are 2 versions of this paper

Date Written: April 22, 2020

Abstract

We develop a model of competition for managerial talent in which firms asymmetrically learn about the ability of their managers. In equilibrium, firms poach talent from competitors, even in the absence of gains from trade. Our main result is that firms inefficiently chase lemons: some poached managers are less productive in their new jobs. Our model provides an equilibrium explanation for the apparent lack of portability of talent observed among some finance workers, such as security analysts and mutual fund managers. The model has predictions linking firm heterogeneity to managerial turnover, compensation, and the distribution of talent.

Keywords: Financial-Sector Labor Markets, Adverse Selection, Poaching

JEL Classification: G30, J62

Suggested Citation

Ferreira, Daniel and Nikolowa, Radoslawa, Chasing Lemons: Competition for Talent Under Asymmetric Information (April 22, 2020). European Corporate Governance Institute - Finance Working Paper No. 621/2019. Available at SSRN: https://ssrn.com/abstract=2572036 or http://dx.doi.org/10.2139/ssrn.2572036

Daniel Ferreira (Contact Author)

London School of Economics - Department of Finance ( email )

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HOME PAGE: http://personal.lse.ac.uk/FERREIRD/

European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Radoslawa Nikolowa

Queen Mary, University of London ( email )

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

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