Chirco, Alessandra and Colombo, Caterina and Scrimitore, Marcella (2009): Competition and the Strategic Choice of Managerial Incentives: the Relative Performance Case.
Download (226kB) | Preview
In this paper we study the role of market competitiveness in a strategic delegation game in which owners delegate output decisions to managers interested in the firm's relative performance. In particular we study how the optimal delegation scheme - i.e. the distortion from pure profit maximization - is affected by market concentration and the elasticity of market demand. We show that these two indexes of market competitiveness do not alter managerial incentives in the same way: while the optimal degree of delegation decreases as the market becomes less concentrated, it increases as demand becomes more elastic.
|Item Type:||MPRA Paper|
|Original Title:||Competition and the Strategic Choice of Managerial Incentives: the Relative Performance Case|
|Keywords:||Strategic delegation, relative performance, oligopoly, isoelastic demand|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||Marcella Scrimitore|
|Date Deposited:||25. Dec 2009 08:15|
|Last Modified:||14. Feb 2013 08:32|
Aggarwal, R.K., and Samwick, A.A., (1999), “Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence”. Journal of Finance 54: 1999 – 2043.
Chirco, A., Colombo, C., and Scrimitore, M., (2009) ''Strategic Delegation and Market Competitiveness''. Economics Bulletin 29: 1708 –1716.
Fershtman, C., and Judd, K.L., (1987), “Equilibrium Incentives in Oligopoly”. American Economic Review 77: 926 – 940.
Georgantzìs, N., Manasakis, C., Mitrokostas, E., and Petrakis, E., (2008), “Strategic Delegation in Experimental Duopolies with Endogenous Incentive Contracts”. Working Papers 0809, Department of Economics, University of Crete.
Jansen, T., van Lier, A., and van Witteloostuijn, A., (2007), “A Note on Strategic Delegation: the Market Share Case”. International Journal of Industrial Organization 25: 531 – 539.
Lundgren, C., (1996), “Using Relative Profit Incentives to Prevent Collusion”. Review of Industrial Organization 11: 533 – 550.
Manasakis, C., Mitrokostas, E., and Petrakis, E., (2007), “Endogenous Strategic Managerial Incentive Contracts”. Working Paper 2007-06, Department of Economics, University of Crete.
Miller, N., and Pazgal, A., (2001), “The Equivalence of Price and Quantity Competition with Delegation”. RAND Journal of Economics 32: 284 – 301.
Miller, N., and Pazgal, A., (2002), “Relative Performance as a Strategic Commitment Mechanism”. Managerial and Decision Economics 23: 51 – 68.
Palomino, F., (2005), “Relative Performance Objectives in Financial Markets”. Journal of Financial Intermediation 14: 351 – 375.
Salas-Fumas, V., (1992), “Relative Performance Evaluation of Management: the Effects on Industrial Competition and Risk Sharing”. International Journal of Industrial Organization 10: 329 – 516.
Schaffer, M.E., (1989), “Are Profit maximisers the Best Survivors?” Journal of Economic Behavior and Organization 12: 29 – 45.
Sklivas, S.D., (1987), “The Strategic Choice of Managerial Incentives”. RAND Journal of Economics 18: 452 – 458.
Vega-Redondo, F., (1997), “The Evolution of Walrasian Behaviour”. Econometrica 65: 375 – 384.
Vickers, J., (1985), “Delegation and the Theory of the Firm”. Economic Journal 95: 138 – 147.