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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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File URL: http://hdl.handle.net/10.1002/mde.1091
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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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References

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  1. Chaim Fershtman & Ehud Kalai, 1993. "Unobserved Delegation," Discussion Papers 1043, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Fershtman, Chaim & Kalai, Ehud, 1997. "Unobserved Delegation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 763-74, November.
  2. Baik, Kyung Hwan & Kim, In-Gyu, 1997. "Delegation in contests," European Journal of Political Economy, Elsevier, vol. 13(2), pages 281-298, May.
  3. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  4. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
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Cited by:
  1. Münster, Johannes, 2006. "Contests with Investment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 120, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Alex Possajennikov, . "Commitment in Symmetric Contests," Discussion Papers 08/13, University of Nottingham, School of Economics.
  3. Kopel, Michael & Brand, Björn, 2012. "Socially responsible firms and endogenous choice of strategic incentives," Economic Modelling, Elsevier, vol. 29(3), pages 982-989.
  4. Krakel, Matthias & Sliwka, Dirk, 2006. "Strategic delegation and mergers in oligopolistic contests," Journal of Economics and Business, Elsevier, vol. 58(2), pages 119-136.
  5. Jost, Peter-J., 2011. "Joint ventures in patent contests with spillovers and the role of strategic budgeting," Journal of Economics and Business, Elsevier, vol. 63(6), pages 605-637.
  6. Johannes Münster, 2007. "Contests with investment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 849-862.
  7. Münster, Johannes, 2006. "Contests with investment," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-09, Social Science Research Center Berlin (WZB).

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