Chasing Lemons: Competition for Talent Under Asymmetric Information
53 Pages Posted: 2 Mar 2015 Last revised: 23 Apr 2020
Date Written: April 22, 2020
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: Suggested Citation