incentivizes managers to perform better and thus saves on the cost of providing pay for performance. However, when managerial … talent is scarce, firms compete to attract better managers. This reduces an individual firm's incentives to invest in … by other firms' governance. In equilibrium, better managers end up at firms with weaker governance, and conversely …

affected by, the choice of governance by other firms. Firms with weaker governance offer managers more generous incentive …

We present a model in which managers are risk-averse and firms compete for scarce managerial talent ("alpha"). When … managers are not mobile across firms, firms provide efficient compensation, which allows for learning about managerial talent … and for insurance of low-quality managers. When instead managers can move across firms, firms cannot offer co …