Competition and the Strategic Choice of Managerial Incentives: the Relative Performance Case

Chirco, Alessandra and Colombo, Caterina and Scrimitore, Marcella (2009): Competition and the Strategic Choice of Managerial Incentives: the Relative Performance Case.

Abstract

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
• Language: English
• 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, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection

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