Managerial reputation and the 'endgame'

This paper examines endgame behavior, specifically the behavior of managers whose primary concern is to retain their jobs. Managers are taken to be of two types, good and bad, and only one manager is randomly selected as the firm's first-period manager. The manager unobservably chooses the mean and standard deviation (limited by a mean-standard deviation frontier) of the p rocess that generates his observable performance. The good manager can choo se higher values of the mean of the outcome-generating process, for given s tandard deviation, than the bad manager can. After the first of the two per iods, the firm's owner must choose to retain or replace her manager based u pon performance. In an endgame-perfect Bayesian equilibria of this reputati on game, a good manager chooses a strategy with minimal standard deviation for a given mean while a bad manager chooses a strategy of maximal standard deviation for a given mean. Examples of this type of behavior drawn from f inance and sports are given in the paper. The perfect Bayesian equilibria o f this game also include conservative, reckless, and herd managerial behavi or. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: C72.