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Power in the firm and managerial career concerns

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1999-01
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With more power, a manager can make more decisions or more important ones, and in this way have more impact on his firm. As a consequence, firm performance provides more information about the abilities of more powerful managers, who are more "visible". In this paper I analyze how the allocation of power in the firm affects the managers' career concerns when no manager's power can be increased without reducing another manager's. I show that, with a simple linear technology and risk-neutral managers, it is generally optimal to divide power in an unequal way, even though this may create conflicts of interest between managers. I also analyze how optimal pay-forperformance schemes should depend on the allocation of power.
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