SFB 303 Discussion Paper No. A - 603

Author: Höffler, Felix and Dirk Sliwka
Title: Do New Brooms Sweep Clean? - Why and when Dismissing Managers Increases a Firm's Performance
Abstract: If a manager stays in office for a long time he will have learned much about his subordinates. Thus competition among them will be weakened as the manager has made up his mind who is suited best for which position. With a new manager the ``rat race'' for favorable tasks is restarted leading subordinates to exert higher effort. But for the firm-owner the trade-off arises that with a new manager effort will be larger but the quality of task allocation will be worse since information is lost. The dismissal decision will be nonmonotonic in her estimation of the heterogeneity in subordinates' abilities.
Keywords: Job Rotation, Dismissal, Incentives, Rat Race
JEL-Classification-Number: D23, L20
Creation-Date: July 1999
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