Managerial incentives under competitive pressure: Experimental investigation
AbstractWe investigate the effects of competition on managerial incentives and effort in a laboratory experiment. Each owner offers compensation to his manager in two different contexts: monopoly and Cournot duopoly. After accepting the compensation, the manager chooses an effort level to increase the probability of reduced costs of his firm. Theory predicts that the entry of a rival firm in a monopolistic industry affects negatively both the incentive compensation and the effort level. Our experimental findings confirm that the entry of a rival firm reduces the incentive compensation but not the manager’s effort level. However, despite the reduction of the incentive compensation, the manager continues to accept the contract offers and exert the same level of effort.
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Bibliographic InfoPaper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 11-12.
Length: 34 pages
Date of creation: Jun 2011
Date of revision: Jun 2011
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Managerial Incentives; Effort; Competition; Moral hazard; Experiments;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-BEC-2011-12-13 (Business Economics)
- NEP-COM-2011-12-13 (Industrial Competition)
- NEP-CTA-2011-12-13 (Contract Theory & Applications)
- NEP-EXP-2011-12-13 (Experimental Economics)
- NEP-HRM-2011-12-13 (Human Capital & Human Resource Management)
- NEP-LAB-2011-12-13 (Labour Economics)
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