Asymmetric Learning and the CEO Labor Market

Many models of the CEO market build on the classic analyses of Lucas (1978) and Rosen (1982) characterized by full information, a limited role for firm-specific human capital, and efficient allocation of workers across jobs and firms. But empirical evidence is not consistent with this approach. We explore an alternative focused on asymmetry of information between an executive's prospective employer and other potential employers, and an important role for firm-specific human capital. We show that our model better captures findings in the empirical literature concerning the CEO labor market than both the full information and efficient assignment approach and alternative models based on asymmetric information and inefficiencies.