fundamental value of the innovation: is it strong or fragile? Second, it is difficult to monitor managers, which creates moral … hazard. Because of moral hazard, managers earn agency rents in equilibrium. As time goes by and profits are observed, beliefs … increasingly confident managers end up requesting very large rents, which curb the growth of the speculative sector. If rents …

is operated by a sequence of managers. In our model, firms replace their managers not only upon poor performance to … provide incentives, but also when outside managers are at a comparative advantage to lead the firm through a new growth phase … of the tenure of the incumbent manager onto the present value of future managers’ compensation. …