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Strategic delegation and collusion: Do incentive schemes matter?

Author

Listed:
  • Jean-Daniel Guigou

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

  • Patrick De Lamirande

    () (Shannon School of Business, Canada)

  • Bruno Lovat

    () (University of Nancy)

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.

Suggested Citation

  • Jean-Daniel Guigou & Patrick De Lamirande & Bruno Lovat, 2011. "Strategic delegation and collusion: Do incentive schemes matter?," LSF Research Working Paper Series 11-02, Luxembourg School of Finance, University of Luxembourg.
  • Handle: RePEc:crf:wpaper:11-02
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    File URL: http://www.lsf.lu/eng/content/download/2314/11538/file/11-02.pdf
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    References listed on IDEAS

    as
    1. Sandeep Kapur & Allan Timmermann, 2005. "Relative Performance Evaluation Contracts and Asset Market Equilibrium," Economic Journal, Royal Economic Society, vol. 115(506), pages 1077-1102, October.
    2. 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.
    3. Malueg, David A., 1992. "Collusive behavior and partial ownership of rivals," International Journal of Industrial Organization, Elsevier, pages 27-34.
    4. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cartel Stability; Delegation; Relative Performance Evaluation;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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