Chasing Lemons: Competition for Talent Under Asymmetric Information

Chasing Lemons: Competition for Talent Under Asymmetric Information

Daniel Ferreira, Radoslawa Nikolowa

Series number :

Serial Number: 
621/2019

Date posted :

August 27 2019

Last revised :

February 21 2020
SSRN Share

Keywords

  • Financial-Sector Labor Markets • 
  • adverse selection • 
  • Poaching

We develop a model of competition for managerial talent in which firms asymmetrically learn about the ability of their managers. In equilibrium, firms actively attempt and succeed at poaching 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 at their new jobs.

Our model provides an equilibrium explanation for the apparent lack of portability of talent observed among some finance workers, such as equity analysts and mutual fund managers. We also show that poaching is more prevalent when firms are more heterogeneous, managerial skills are more general, and the distribution of talent is more skewed.

Authors

Real name:
Radoslawa Nikolowa