Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212385 
Authors: 
Year of Publication: 
2017
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 14/2017
Publisher: 
Bank of Finland, Helsinki
Abstract: 
I examine optimal managerial compensation and turnover policy in a principal-agent model in which the firm output is serially correlated over time. The model captures a learning-by-doing feature: higher effort by the manager increases the quality of the match between the firm and the manager in the future. The optimal incentive scheme entails an inefficiently high turnover rate in the early stages of the employment relationship. The optimal turnover probability depends on the past performance and the likelihood of turnover decreases gradually with superior performance. Following weak performance, the contract implements a permanently inefficient turnover rate. With correlated outcome, a permanent inefficiency is needed to save on information rents to the agent, even when the agent does not have persistent private information.
JEL: 
C73
D82
D86
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-171-9
Document Type: 
Working Paper

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