Managerial incentives under competitive pressure: Experimental investigation
We investigate the effects of competition on managerial incentives and effort in a laboratory experiment. Each owner offers compensation to his manager in two different contexts: monopoly and Cournot duopoly. After accepting the compensation, the manager chooses an effort level to increase the probability of reduced costs of his firm. Theory predicts that the entry of a rival firm in a monopolistic industry affects negatively both the incentive compensation and the effort level. Our experimental findings confirm that the entry of a rival firm reduces the incentive compensation but not the manager’s effort level. However, despite the reduction of the incentive compensation, the manager continues to accept the contract offers and exert the same level of effort.
|Date of creation:||Jun 2011|
|Date of revision:||Jun 2011|
|Contact details of provider:|| Postal: Avenue Raymond Dugrand, CS 79606, 34960 Montpellier Cedex 2|
Web page: http://www.lameta.univ-montp1.fr/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grossman, Sanford J & Hart, Oliver D, 1983.
"An Analysis of the Principal-Agent Problem,"
Econometric Society, vol. 51(1), pages 7-45, January.
- Sanford Grossman & Oliver Hart, "undated". "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
- Sanford J Grossman & Oliver D Hart, 2001. "An Analysis of the Principal-Agent Problem," Levine's Working Paper Archive 391749000000000339, David K. Levine.
- Schmidt, Klaus M., 1997.
"Managerial Incentives and Product Market Competition,"
Munich Reprints in Economics
19772, University of Munich, Department of Economics.
- Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
- Januszewski, Silke I. & Koke, Jens & Winter, Joachim K., 2002.
"Product market competition, corporate governance and firm performance: an empirical analysis for Germany,"
Research in Economics,
Elsevier, vol. 56(3), pages 299-332, September.
- Januszewski, Silke I. & Köke, F. Jens & Winter, Joachim, 2002. "Product market competition, corporate governance and firm performance: An empirical analysis for Germany," Munich Reprints in Economics 19548, University of Munich, Department of Economics.
- Januszewski, Silke I. & Köke, Jens & Winter, Joachim K., 1999. "Product market competition, corporate governance and firm performance: an empirical analysis for Germany," ZEW Discussion Papers 99-63, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Horn, H. & Lang, H. & Lundgren, S., 1991.
"Competition, Long Run Contracts and Internal Inefficiencies in Firms,"
506, Stockholm - International Economic Studies.
- Horn, Henrik & Lang, Harald & Lundgren, Stefan, 1994. "Competition, long run contracts and internal inefficiencies in firms," European Economic Review, Elsevier, vol. 38(2), pages 213-233, February.
- repec:lmu:muenar:19529 is not listed on IDEAS
- Keser, Claudia & Willinger, Marc, 2007.
"Theories of behavior in principal-agent relationships with hidden action,"
European Economic Review,
Elsevier, vol. 51(6), pages 1514-1533, August.
- Claudia Keser & Marc Willinger, 2002. "Theories Of Behavior In Principal-Agent Relationships With Hidden Action," Working Papers of BETA 2002-07, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
- François Cochard & Marc Willinger, 2005.
"Fair Offers in a Repeated Principal-Agent Relationship with Hidden Actions,"
London School of Economics and Political Science, vol. 72(286), pages 225-240, 05.
- Francois Cochard & Marc Willinger, 2005. "Fair Offers in a Repeated Principal-Agent Relationship with Hidden Actions," Post-Print hal-01351562, HAL.
- Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
- 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.
- Michael Raith, 2003. "Competition, Risk, and Managerial Incentives," American Economic Review, American Economic Association, vol. 93(4), pages 1425-1436, September.
- David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring.
- Martin Stephen, 1993. "Endogenous Firm Efficiency in a Cournot Principal-Agent Model," Journal of Economic Theory, Elsevier, vol. 59(2), pages 445-450, April.
When requesting a correction, please mention this item's handle: RePEc:lam:wpaper:11-12. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Patricia Modat)
If references are entirely missing, you can add them using this form.