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Delegation and strategic incentives for managers in contests

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  • Matthias Kräkel

    (Department of Economics, University of Bonn, Bonn, Germany)

Abstract

Owners usually want their managers to maximize profits. As the literature on strategic delegation has shown it may be beneficial to owners to put a positive weight on sales in the optimal linear incentive scheme for managers to make them behave more aggressively in the market. This paper shows that if the competition between the managers can be characterized as a contest, owners may induce their managers to maximize sales. Moreover, there is a first-mover advantage for owners when choosing their incentive schemes. If delegation is endogenous the type of contest will determine whether all owners delegate their decisions to managers or not. Copyright © 2002 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 23 (2002)
Issue (Month): 8 ()
Pages: 461-470

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Handle: RePEc:wly:mgtdec:v:23:y:2002:i:8:p:461-470

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Fershtman, C. & Kalai, E., 1993. "Unobserved Delegation," Papers, Tel Aviv - the Sackler Institute of Economic Studies 10-93, Tel Aviv - the Sackler Institute of Economic Studies.
  2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  3. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
  4. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 891-98, December.
  5. Baik, Kyung Hwan & Kim, In-Gyu, 1997. "Delegation in contests," European Journal of Political Economy, Elsevier, Elsevier, vol. 13(2), pages 281-298, May.
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Cited by:
  1. Alex Possajennikov, . "Commitment in Symmetric Contests," Discussion Papers 08/13, University of Nottingham, School of Economics.
  2. Krakel, Matthias & Sliwka, Dirk, 2006. "Strategic delegation and mergers in oligopolistic contests," Journal of Economics and Business, Elsevier, Elsevier, vol. 58(2), pages 119-136.
  3. Münster, Johannes, 2006. "Contests with investment," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-09, Social Science Research Center Berlin (WZB).
  4. Jost, Peter-J., 2011. "Joint ventures in patent contests with spillovers and the role of strategic budgeting," Journal of Economics and Business, Elsevier, Elsevier, vol. 63(6), pages 605-637.
  5. Münster, Johannes, 2006. "Contests with Investment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 120, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Johannes Münster, 2007. "Contests with investment," Managerial and Decision Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 28(8), pages 849-862.
  7. Kopel, Michael & Brand, Björn, 2012. "Socially responsible firms and endogenous choice of strategic incentives," Economic Modelling, Elsevier, Elsevier, vol. 29(3), pages 982-989.

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