This paper deals with the strategic role of the temporal dimension of contracts in a duopoly market. Is it better for a firm to sign long-term incentive contracts with managers or short-term contracts? For the linear case, with strategic substitutes (complements) in the product market, the incentive variables are also strategic substitutes (complements). It is shown that a long-term contract makes a firm a leader in incentives, while a short-term contract makes it a follower. We find that, under Bertrand competition, in equilibrium one firm signs a long-term contract and the other firm short-term incentive contracts; however, under Cournot competition, the dominant strategy is to sign long-term incentive contracts. Copyright 1996 The Massachusetts Institute of Technology.
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F. Javier Casado-Izaga & Juan Carlos Barcena-Ruiz, 1999.
"Should Owners of Firms Delegate Long-run Decisions?,"
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199911, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
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