You are not currently logged in.
Access JSTOR through your library or other institution:
On the Efficiency of Markets for Managers
Vol. 18, No. 3 (Nov., 2001), pp. 701-710
Published by: Springer
Stable URL: http://www.jstor.org/stable/25055447
Page Count: 10
Preview not available
This paper examines the efficiency of the outside labor market in inducing optimal managerial behavior in the presence of learning. It shows that the incentives provided by the market can be more efficient than the original analysis of Holmström  would suggest. Moreover, under a mild additional assumption, the existence of an ε-efficient equilibrium can be guaranteed if a manager is patient. This result supports Fama's  original idea that the outside labor market can be efficient in disciplining top managers. These results also suggest that the empirically documented low levels of explicit incentives for managers might be due to the presence of implicit incentives provided by the outside market.
Economic Theory © 2001 Springer