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Managerial incentives for process innovation

Author

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  • Bastiaan M. Overvest

    (Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands)

  • Jasper Veldman

    (Faculty of Economics and Business, University of Groningen, Groningen, The Netherlands)

Abstract

Cost-reducing investments by firms are often not publicly observable. This lack of observability would preclude a strategic use of process innovation. However, we show that an observable and verifiable contract that provides direct monetary incentives for cost reductions - an innovation incentive contract - can act as a strategic commitment device. Our model predicts that manager-led firms are more innovative than owner-led firms and that these contracts become less prevalent as product market competition intensifies. Both predictions are consistent with recent empirical evidence. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Bastiaan M. Overvest & Jasper Veldman, 2008. "Managerial incentives for process innovation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(7), pages 539-545.
    • Handle: RePEc:wly:mgtdec:v:29:y:2008:i:7:p:539-545
    DOI: 10.1002/mde.1416
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    References listed on IDEAS

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    Cited by:

    1. Genlong Guo & Shoude Li, 2023. "A dynamic analysis of a monopolist's efforts for improving product quality and process innovation with reference price effects under linear demand," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2328-2345, June.
    2. Bian, Junsong & Li, Kevin W. & Guo, Xiaolei, 2016. "A strategic analysis of incorporating CSR into managerial incentive design," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 86(C), pages 83-93.
    3. Jean‐Baptiste Tondji, 2022. "Overconfidence and welfare in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(3), pages 751-767, April.
    4. Veldman, Jasper & Gaalman, Gerard, 2014. "A model of strategic product quality and process improvement incentives," International Journal of Production Economics, Elsevier, vol. 149(C), pages 202-210.
    5. Veldman, Jasper & Gaalman, Gerard J.C., 2015. "Competitive investments in cost reducing process improvement: The role of managerial incentives and spillover learning," International Journal of Production Economics, Elsevier, vol. 170(PB), pages 701-709.
    6. Dobson, Paul W. & Chakraborty, Ratula, 2020. "Strategic incentives for complementary producers to innovate for efficiency and support sustainability," International Journal of Production Economics, Elsevier, vol. 219(C), pages 431-439.
    7. Florian Englmaier, 2010. "Managerial optimism and investment choice," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 303-310.
    8. Pei-Cheng Liao, 2014. "Strategic Delegation of Multiple Tasks," Australian Economic Papers, Wiley Blackwell, vol. 53(1-2), pages 77-96, June.

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