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Managerial compensation contracts in quantity-setting duopoly

Author

Listed:
  • Iván Barreda-Tarrazona

    (LEE & Economics Department, Universitat Jaume I, Castellón, Spain)

  • Nikolaos Georgantzís

    (GLOBE & Economics Department, University of Granada, Spain
    LEE & Economics Department, Universitat Jaume I, Castellón-Spain
    University of Portsmouth)

  • Constantine Manasakis

    (University of Crete)

  • Evangelos Mitrokostas

    (University of Portsmouth)

  • Emmanuel Petrakis

    (University of Crete)

Abstract

In the context of a quantity setting duopoly we experimentally test the ability of managerial compensation schemes to provide a commitment device leading to a more aggressive behavior in the product market. In line with our model, Relative Performance-based rewards are chosen more frequently than Profit-Revenue ones. Furthermore, output reacts to the contract terms in the expected way, although it tends to exceed the predicted levels. Other quantitative aspects of the model receive less support, especially because firm owners tend to use more balanced weights for their managers' induced objectives than the theory predicts. Overall, quantity setting behavior is more aggressive than the theory predicts.

Suggested Citation

  • Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
    • Handle: RePEc:jau:wpaper:2012/17
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    References listed on IDEAS

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    More about this item

    Keywords

    Experimental economics; Oligopoly theory; Managerial delegation; Endogenous contracts;
    All these keywords.

    JEL classification:

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

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