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Strategic delegation and collusion: Do incentive schemes matter?

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  • Jean-Daniel Guigou

    ()
    (Luxembourg School of Finance, University of Luxembourg)

  • Patrick De Lamirande

    ()
    (Shannon School of Business, Canada)

  • Bruno Lovat

    ()
    (University of Nancy)

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    Abstract

    This paper introduces delegation decisions and contracts based on relative performance evaluation (RPE) in the analysis of cartel stability. We follow the approach developed by Lambertini and Trombetta [12], where manager's compensation combines pro_ts and sales (CPS) instead. Some of our results are similar while others are distinct from those of Lambertini and Trombetta. In particular, we show that collusion under RPE is always harder to sustain than under CPS.

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    Bibliographic Info

    Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 11-02.

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    Date of creation: 2011
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    Handle: RePEc:crf:wpaper:11-02

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    Keywords: Cartel Stability; Delegation; Relative Performance Evaluation;

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    References

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    1. Matthew J. Clayton & Bjorn N. Jorgensen, 2005. "Optimal Cross Holding with Externalities and Strategic Interactions," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1505-1522, July.
    2. Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
    3. Sandeep Kapur & Allan Timmermann, 2004. "Relative Performance Evaluation Contracts and Asset Market Equilibrium," Finance, EconWPA 0408005, EconWPA.
    4. Malueg, David A., 1992. "Collusive behavior and partial ownership of rivals," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 10(1), pages 27-34, March.
    5. Marco Celentani & Rosa Loveira, 2006. "A Simple Explanation of the Relative Performance Evaluation Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 525-540, July.
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