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Endogenous Strategic Managerial Incentive Contracts

  • Constantine Manasakis

    ()

    (Department of Economics, University of Crete, Greece)

  • Evangelos Mitrokostas

    ()

    (Department of Economics, University of Crete)

  • Emmanuel Petrakis

    ()

    (Department of Economics, University of Crete, Greece)

This paper studies the endogenous structure of incentive contracts that firms' owners offer to their managers, when these contracts are linear combinations either of own profits and own revenues, or of own profits and competitor's profits or, finally, of own profits and own market share. In equilibrium, each owner has a dominant strategy to reward his manager with a contract combining own profits and competitor's profits. Contrary to the received literature, the case where there is no ex-ante commitment over any type of contract that each owner offers to his manager is also examined. In equilibrium, each type of contract is an owner's best response to the competing owner's choice.

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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0706.

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Date of creation: 23 Jan 2007
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Handle: RePEc:crt:wpaper:0706
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  1. Gibbons, R. & Murphy, K.J., 1989. "Relative Performance Evaluation For Chief Executive Officers," Working papers 532, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Michael L. Katz., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Economics Working Papers 91-172, University of California at Berkeley.
  3. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Miller, Nolan H & Pazgal, Amit I, 2001. "The Equivalence of Price and Quantity Competition with Delegation," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 284-301, Summer.
  5. Levent Ko�kesen & Efe A. Ok, 2004. "Strategic Delegation By Unobservable Incentive Contracts," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 397-424.
  6. Miller, Nolan H. & Pazgal, Amit, 2005. "Strategic trade and delegated competition," Journal of International Economics, Elsevier, vol. 66(1), pages 215-231, May.
  7. Jensen, M.C. & Murphy, K.J., 1988. "Performance Pay And Top Management Incentives," Papers 88-04, Rochester, Business - Managerial Economics Research Center.
  8. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  9. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  10. Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
  11. Robert Ritz, 2005. "Strategic incentives for market share," Economics Series Working Papers 248, University of Oxford, Department of Economics.
  12. Nolan Miller & Amit Pazgal, 2002. "Relative performance as a strategic commitment mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 51-68.
  13. Sung Wook Joh, 1999. "Strategic Managerial Incentive Compensation In Japan: Relative Performance Evaluation And Product Market Collusion," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 303-313, May.
  14. Kockesen, L. & Ok, E., 1999. "Strategic Delegation by Unobservable Incentive Contracts," Working Papers 99-11, C.V. Starr Center for Applied Economics, New York University.
  15. Fershtman, Chaim, 1985. "Managerial incentives as a strategic variable in duopolistic environment," International Journal of Industrial Organization, Elsevier, vol. 3(2), pages 245-253, June.
  16. Jansen, Thijs & van Lier, Arie & van Witteloostuijn, Arjen, 2007. "A note on strategic delegation: The market share case," International Journal of Industrial Organization, Elsevier, vol. 25(3), pages 531-539, June.
  17. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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