Do new brooms sweep clean? When and why dismissing a manager increases the subordinates' performance

Abstract If a manager stays in office for a long time he will have learned much about his subordinates. Thus competition among them will be weak as the manager has made up his mind who is suited best for which position. With a new manager the “race” for favorable tasks is restarted leading subordinates to exert higher effort. But for the firm-owner the trade-off arises that with a new manager effort is larger but the quality of task allocation is worse since information is lost. The optimal dismissal policy will be nonmonotonic in the expected heterogeneity of the subordinates’ abilities.