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Managerial Optimism and Investment Choice

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  • Englmaier, Florian

Abstract

This paper analyzes whether it might be desirable for a firm to hire an overoptimistic manager to commit to a certain R&D strategy. I consider a Cournot model with an ex-ante R&D stage where firms can invest in cost reduction before product market competition takes place. I show that firms want to hire overoptimistic managers and argue that a manager's type may serve as a substitute for strategic delegation via contracts. © 2010 John Wiley & Sons,Ltd.

Suggested Citation

  • Englmaier, Florian, 2010. "Managerial Optimism and Investment Choice," Munich Reprints in Economics 22026, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:22026
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    Cited by:

    1. Kojun Hamada, 2021. "Cooperative managerial delegation revisited: Including the firm's cost as a managerial objective," Bulletin of Economic Research, Wiley Blackwell, vol. 73(2), pages 171-178, April.
    2. Król, Michał, 2012. "Product differentiation decisions under ambiguous consumer demand and pessimistic expectations," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 593-604.
    3. Otto, Clemens A., 2014. "CEO optimism and incentive compensation," Journal of Financial Economics, Elsevier, vol. 114(2), pages 366-404.
    4. Clemens Buchen & Alberto Palermo, 2020. "A biased firm in a market with complementary products. A note on the welfare effects," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 448-453, September.
    5. Ivana Vitanova, 2022. "CEO overconfidence and corporate tournaments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1423-1438, July.
    6. Meccheri Nicola, 2023. "On the Social Desirability of Centralized Wage Setting when Firms are Run by Biased Managers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 23(3), pages 701-725, July.
    7. Ulrike Malmendier & Vincenzo Pezone & Hui Zheng, 2023. "Managerial Duties and Managerial Biases," Management Science, INFORMS, vol. 69(6), pages 3174-3201, June.
    8. Bradler, Christiane, 2015. "How creative are you? An experimental study on self-selection in a competitive incentive scheme for creative performance," ZEW Discussion Papers 15-021, ZEW - Leibniz Centre for European Economic Research.
    9. repec:bla:annpce:v:89:y:2018:i:1:p:235-249 is not listed on IDEAS
    10. Victor J. Tremblay, 2025. "CEO bias and the degree of industry competition," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 29(1), pages 175-191, March.
    11. Kopel, Michael & Putz, Eva Maria, 2021. "Why socially concerned firms use low-powered managerial incentives: A complementary explanation," Economic Modelling, Elsevier, vol. 94(C), pages 473-482.
    12. Wang, Jian & Wang, Xiaoting & Zhuang, Xintian & Yang, Jun, 2017. "Optimism bias, portfolio delegation, and economic welfare," Economics Letters, Elsevier, vol. 150(C), pages 111-113.
    13. Lucia Modugno, 2024. "Evaluating Qualitative Expectational Data on Investments from Business Surveys," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 20(1), pages 59-88, August.
    14. Elizabeth Schroeder & Carol Horton Tremblay & Victor J. Tremblay, 2022. "CEO Bias and Product Substitutability in Oligopoly Games," Games, MDPI, vol. 13(2), pages 1-23, March.
    15. Takeshi Murooka & Yuichi Yamamoto, 2021. "Misspecified Bayesian Learning by Strategic Players: First-Order Misspecification and Higher-Order Misspecification," OSIPP Discussion Paper 21E008, Osaka School of International Public Policy, Osaka University.
    16. Fabian Herweg & Daniel Müller, 2016. "Overconfidence in the Markets for Lemons," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(2), pages 354-371, April.
    17. Winifred Huang-Meier & Neophytos Lambertides & James M. Steeley, 2016. "Motives for corporate cash holdings: the CEO optimism effect," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 699-732, October.
    18. Elizabeth Schroeder & Carol Horton Tremblay & Victor J. Tremblay, 2021. "Confidence bias and advertising in imperfectly competitive markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 885-897, June.
    19. 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.
    20. Clemens Buchen & Sven A. Hartmann & Alberto Palermo, 2021. "Our product is unique: A note on a delegation game with differentiated products," Economics Bulletin, AccessEcon, vol. 41(3), pages 1322-1329.
    21. Takeshi Murooka & Yuichi Yamamoto, 2021. "Multi-Player Bayesian Learning with Misspecified Models," OSIPP Discussion Paper 21E001, Osaka School of International Public Policy, Osaka University.
    22. Nicola Meccheri, 2021. "Biased managers in vertically related markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 724-736, April.
    23. repec:rim:rimwps:19-12 is not listed on IDEAS
    24. Wang, Chunlan & Xin, Jianxuan & Sun, Fangfang & Shi, Yan & Du, Yuxuan, 2024. "The effects of manager sentiment in financial disclosure: Perspectives of operational efficiency and market reaction," Finance Research Letters, Elsevier, vol. 64(C).

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