Strategic delegation in experimental duopolies with endogenous incentive contracts

Nikolaos Georgantzís (), Constantine Manasakis (), Evangelos Mitrokostas () and Emmanuel Petrakis ()

No 809, Working Papers from University of Crete, Department of Economics

Abstract: Often, deviations of firm behavior from profit maximization are the result of managerial incentive contracts. We study the endogenous emergence of incentive contracts used by firm owners to delegate the strategic decisions of the firm. These contracts are linear combinations either of own firm's profits and revenues, or own and rival firms' profits. A two- and three-stage game are studied depending on whether owners commit or not to a certain contract type before setting the managerial incentives and the level of output to produce in the market. We report experimental results which confirm some of the predictions of the model, especially those concerning owners' preference for relative performance incentives over profit-revenue contracts. Neglected behavioral aspects are proposed as possible explanation of some divergence between the theory and the experimental evidence, more specifically the relation between contract terms and managers' output choices

Keywords: Experimental economics; Oligopoly theory; Managerial delegation; Endogenous contracts. (search for similar items in EconPapers)
JEL-codes: D43 L21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse, nep-cta, nep-exp and nep-mic
Date: 2008-06-05
View list of references

Downloads: (external link)
http://economics.soc.uoc.gr/wpa/docs/Experiment_Strategic_Delegation.pdf First version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:crt:wpaper:0809

Access Statistics for this paper

More papers in Working Papers from University of Crete, Department of Economics
Contact information at EDIRC.
Series data maintained by Kostis Pigounakis ().