Heterogeneity in Organizational Form: Why Otherwise Identical Firms Choose Different Incentives for Their Managers
AbstractProduct-market competition affects the benefits from providing incentives to managers. In particular, the best response to other firms providing strong incentives can be to provide weak incentives. Conversely, the best response to other firms providing weak incentives can be to provide strong incentives. In equilibrium only a fraction of the firms may, therefore, provide strong incentives. Moreover, all equilibria may exhibit heterogeneity in incentives due to the nonconvexities inherent in the underlying agency problem between firms and their managers. This article also investigates how increased competition affects the strength of the incentives provided in the equilibrium.
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Bibliographic InfoPaper provided by University of California at Berkeley in its series Economics Working Papers with number 92-193.
Date of creation: 01 May 1992
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Other versions of this item:
- Benjamin E. Hermalin, 1994. "Heterogeneity in Organizational Form: Why Otherwise Identical Firms Choose Different Incentives for Their Managers," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 518-537, Winter.
- Hermalin, Benjamin E., 1992. "Heterogeneity in Organizational Form: Why Otherwise Identical Firms Choose Different Incentives for Their Managers," Department of Economics, Working Paper Series qt4v4548gz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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