We analyze competition between firms engaged in R&D activities and market competition to study the choice of the incentive contracts for managers with hidden productivity. Oligopolistic screening requires extra effort/investment from the most productive managers: under additional assumptions on the hazard rate of the distribution of types we obtain no distortion in the middle rather than at the top. The equilibrium contracts are characterized by effort differentials between (any) two types always increasing with the number of firms, suggesting a positive relation between competition and high-powered incentives. An inverted U curve between competition and absolute investments can emerge for the most productive managers.

Etro, F., Cella, M. (2013). Equilibrium Principal-Agent Contracts: Competition and R&D Incentives. JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, 22(3), 488-512 [10.1111/jems.12021].

Equilibrium Principal-Agent Contracts: Competition and R&D Incentives

CELLA, MICHELA
2013

Abstract

We analyze competition between firms engaged in R&D activities and market competition to study the choice of the incentive contracts for managers with hidden productivity. Oligopolistic screening requires extra effort/investment from the most productive managers: under additional assumptions on the hazard rate of the distribution of types we obtain no distortion in the middle rather than at the top. The equilibrium contracts are characterized by effort differentials between (any) two types always increasing with the number of firms, suggesting a positive relation between competition and high-powered incentives. An inverted U curve between competition and absolute investments can emerge for the most productive managers.
Articolo in rivista - Articolo scientifico
contracts, competition, oligopoly
English
2013
22
3
488
512
open
Etro, F., Cella, M. (2013). Equilibrium Principal-Agent Contracts: Competition and R&D Incentives. JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, 22(3), 488-512 [10.1111/jems.12021].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/49239
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