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Contract Competition between Hierarchies, Managerial Compensation and Imperfectly Correlated Shocks

Listed author(s):
  • Michela, Cella
  • Federico, Etro

We analyze competition through incentive contracts for managers in duopoly. Privately informed managers exert surplus enhancing e¤ort that generates an externality on the rival. Asymmetric information on imperfectly correlated shocks creates a two-way distortion of efforts under strategic substitutability in effort and a double downward distortion under strategic complementarity in effort. In the first case, as with contracts for R&D activity or small contractual spillovers for quantity and price competition, increasing the correlation of types reduces the polarization of contracts and the di¤erentials in managerial compensations between efficient and inefficient managers. In the second case, as with large contractual spillovers, the opposite occurs.

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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 328.

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Length: 32
Date of creation: 07 Feb 2016
Date of revision: 07 Feb 2016
Handle: RePEc:mib:wpaper:328
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