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Martin Peitz, University of Mannheim Print
Tuesday, 29 November 2011, 13:30 - 14:45

Martin Peitz, University of Mannheim

Markets for Ideas, Asymmetric Information and the Allocation of Managerial Skills

Abstract: The success of a product is often jointly determined by the usefulness of an idea and managerial skill, which are in a complementary relationship. We postulate that consumers and incoming managers cannot observe these sources of success, but rely on profit data to form their beliefs. Incoming managers take over firms, replace outgoing managers, and acquire ideas. The sales price of an idea increases with the prior to purchase unobservable usefulness of an idea. Though managerial skills are endogenously positively correlated over time, useful ideas end up under the control of better skilled managers. The market for ideas leads to positively assortative matches even though asymmetric information constitutes a friction in the matching of ideas and managers.

Location: R42.2.113
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