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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.
The firms listed on the stock market in aggregate contribute less to total non-farm employment and GDP now than in the 1970s. A major reason for this...