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Abstract

In this experiment, we analyze strategic delegation in a Cournot duopoly. Owners can choose among two different contracts which determine their managers' salaries. One contract simply gives managers incentives to maximize firm profits, while the second contract gives an additional sales bonus. Although theory predicts the second contract to be chosen, it is only rarely chosen in the experimental markets. This behavior is rational given that managers do not play according to the subgame perfect equilibrium prediction when asymmetric contracts are given. --

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 22 (2004)
Issue (Month): 4 (April)
Pages: 561-574

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Handle: RePEc:eee:indorg:v:22:y:2004:i:4:p:561-574

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Web page: http://www.elsevier.com/locate/inca/505551

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Find related papers by JEL classification:

• C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
• C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
• D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
• D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

References

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Citations

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Cited by:

1. Mark Armstrong & Steffen Huck, 2010. "Behavioral Economics as Applied to Firms: A Primer," CPI Journal, Competition Policy International, vol. 6.
   
   • Mark Armstrong & Steffen Huck, 2011. "Behavioral Economics as Applied to Firms: A Primer," Antitrust Chronicle, Competition Policy International, vol. 1.
   • Mark Armstrong & Steffen Huck, 2010. "Behavioral Economics as Applied to Firms: A Primer," CESifo Working Paper Series 2937, CESifo Group Munich.
   • Armstrong, Mark & Huck, Steffen, 2010. "Behavioral economics as applied to firms: a primer," MPRA Paper 20356, University Library of Munich, Germany.
2. Engelmann, Dirk & Normann, Hans-Theo, 2007. "An experimental test of strategic trade policy," Journal of Economic Behavior & Organization, Elsevier, vol. 64(1), pages 144-156, September.
   
   • Dirk Engelmann & Hans-Theo Normann, 2003. "An Experimental Test of Strategic Trade Policy," CERGE-EI Working Papers wp212, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
3. Björn Bartling & Urs Fischbacher, 2008. "Shifting the Blame: On Delegation and Responsibility," IEW - Working Papers 380, Institute for Empirical Research in Economics - University of Zurich.
   
   • Björn Bartling & Urs Fischbacher, 2012. "Shifting the Blame: On Delegation and Responsibility," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 67-87.
   • Björn Bartling & Urs Fischbacher, 2008. "Shifting the Blame: On Delegation and Responsibility," TWI Research Paper Series 32, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
4. Burkhard C. Schipper & Philippe Raab, 2006. "Cournot Competition between Teams: An Experimental Study," Working Papers 626, University of California, Davis, Department of Economics.
   
   • Raab, Philippe & Schipper, Burkhard C., 2009. "Cournot competition between teams: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 691-702, November.
   • Raab, Philippe & Schipper, Burkhard C., 2007. "Cournot Competition between Teams: An Experimental Study," Working Papers 06-26, University of California at Davis, Department of Economics.
   • Philippe Raab & Burkhard C. Schipper, 2004. "Cournot Competition between Teams: An Experimental Study," Bonn Econ Discussion Papers bgse13_2004, University of Bonn, Germany.
5. John S. Heywood & Guangliang Ye, 2009. "Delegation in a mixed oligopoly: the case of multiple private firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 71-82.
6. Le Coq, Chloé & Orzen, Henrik, 2002. "Do Forward Markets Enhance Competition? Experimental Evidence," Working Paper Series in Economics and Finance 506, Stockholm School of Economics, revised 01 Oct 2004.
   
   • Le Coq, Chloe & Orzen, Henrik, 2006. "Do forward markets enhance competition?: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 415-431, November.
7. Sacco, Dario & Schmutzler, Armin, 2011. "Is there a U-shaped relation between competition and investment?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 65-73, January.
8. Nikolaos Georgantz�s & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2008. "Strategic delegation in experimental duopolies with endogenous incentive contracts," Working Papers 0809, University of Crete, Department of Economics.
9. Jörg Oechssler & Frank Schuhmacher, 2001. "The Limited Liability Effect in Experimental Duopoly Markets," Bonn Econ Discussion Papers bgse36_2001, University of Bonn, Germany.
   
   • Oechssler, Jorg & Schuhmacher, Frank, 2004. "The limited liability effect in experimental duopoly markets," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 163-184, February.
10. Lisa Bruttel & Simeon Schudy, 2010. "Competition within firms," TWI Research Paper Series 62, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
11. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
12. Lai, Ernest K. & Lim, Wooyoung, 2012. "Authority and communication in the laboratory," Games and Economic Behavior, Elsevier, vol. 74(2), pages 541-560.

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