The Benefit and Cost of Winner-Picking: Redistribution versus Incentives
AbstractThis paper examines the agency cost of winner-picking in multidivision firms and uses explicit incentive contracts to analyze the interaction between corporate headquarters´ investment and incentive policies. Winner-picking, i.e., the efficient reallocation of scarce resources in an internal capital market, adds an extra layer of noise to the moral-hazard problem of incentivizing division managers to produce the resources that can then be redistributed. In particular, division managers with strong future investment opportunities anticipate that headquarters will bail them out should they fail to produce enough resources themselves. This reduces incentives to create the resources in the first place, with possible consequences for the optimal investment policy.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 165 (2009)
Issue (Month): 4 (December)
Contact details of provider:
Web page: http://www.mohr.de/jite
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Other versions of this item:
- GAUTIER, Axel & HEIDER, Florian, . "The benefit and cost of winner-picking: redistribution versus incentives," CORE Discussion Papers RP -2198, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Akbel, Basak & Schnitzer, Monika, 2011.
"Creditor rights and debt allocation within multinationals,"
Munich Reprints in Economics
20174, University of Munich, Department of Economics.
- Akbel, Basak & Schnitzer, Monika, 2011. "Creditor rights and debt allocation within multinationals," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1367-1379, June.
- Akbel, Basak & Schnitzer, Monika, 2010. "Creditor Rights and Debt Allocation within Multinationals," CEPR Discussion Papers 7958, C.E.P.R. Discussion Papers.
- Akbel, Basak & Schnitzer, Monika, 2009. "Creditor Rights and Debt Allocation within Multinationals," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 304, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Löffler, Clemens & Pfeiffer, Thomas, 2013. "Centralized versus Decentralized External Financing, Winner Picking and Corporate Socialism," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79902, Verein für Socialpolitik / German Economic Association.
- Almeida, Heitor & Wolfenzon, Daniel, 2006. "Should business groups be dismantled? The equilibrium costs of efficient internal capital markets," Journal of Financial Economics, Elsevier, vol. 79(1), pages 99-144, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Wolpert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.