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Delegation, worker compensation, and strategic competition

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  • Güth, Werner
  • Pull, Kerstin
  • Stadler, Manfred

Abstract

We study interfirm competition on a product market where effort decisions are delegated to the firms' workers. Intrafirm organization is captured by a principal-multiagent framework where firm owners implement alternative compensation schemes for the workers. We show that the value of delegation as well as the optimal design of the compensation scheme crucially depend on the intensity of competition. In particular, our model explains why piece rates and performance-based revenue sharing may be observed in different markets at the same time. --

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Bibliographic Info

Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 67.

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Date of creation: 2014
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Handle: RePEc:zbw:tuewef:67

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Keywords: delegation; agency theory; compensation schemes;

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  2. Schmidt, Klaus M., 1997. "Managerial Incentives and Product Market Competition," Munich Reprints in Economics, University of Munich, Department of Economics 19772, University of Munich, Department of Economics.
  3. Vicente Cuñat & Maria Guadalupe, 2007. "Executive Compensation and Competition in the Banking and Financial Sectors," FMG Discussion Papers, Financial Markets Group dp598, Financial Markets Group.
  4. Werner Güth & Kerstin Pull & Manfred Stadler, 2009. "Intra-firm Conflicts and Interfirm Competition," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2009-007, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  5. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, Oxford University Press, edition 2, number 9780199243273, October.
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  11. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
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  15. Berger, Johannes & Herbertz, Claus & Sliwka, Dirk, 2011. "Incentives and Cooperation in Firms: Field Evidence," IZA Discussion Papers 5618, Institute for the Study of Labor (IZA).
  16. Susan Helper & Morris M. Kleiner & Yingchun Wang, 2010. "Analyzing Compensation Methods in Manufacturing: Piece Rates, Time Rates, or Gain-Sharing?," NBER Working Papers 16540, National Bureau of Economic Research, Inc.
  17. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 25(3), pages 531-539, June.
  18. Chaim Fershtman & Kenneth L. Judd, 2006. "Equilibrium Incentives in Oligopoly: Corrigendum," American Economic Review, American Economic Association, American Economic Association, vol. 96(4), pages 1367-1367, September.
  19. Güth, Werner & Pull, Kerstin & Stadler, Manfred, 2012. "Strategic delegation in price competition," University of Tuebingen Working Papers in Economics and Finance, University of Tuebingen, Faculty of Economics and Social Sciences 43, University of Tuebingen, Faculty of Economics and Social Sciences.
  20. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 3(2), pages 245-253, June.
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