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Why socially concerned firms use low-powered managerial incentives: A complementary explanation

Michael Kopel () and Eva Maria Putz

Economic Modelling, 2021, vol. 94, issue C, 473-482

Abstract: We study a duopoly market where a profit-maximizing firm and a socially concerned firm compete by offering differentiated products to consumers. Both firms delegate the quantity (price) decisions to a manager. The socially concerned firm employs an intrinsically motivated manager whose interest is partially aligned with the firm's objective. The profit-maximizing firm's manager is simply interested in maximizing compensation. We find that depending on the substitutability of the firms' products and the level of the firm's social concern, the socially concerned firm might prefer – solely for strategic reasons – a flat wage for compensating its motivated manager rather than a variable bonus. Our paper points to strategic motives as a complementary explanation for the observation that hybrid organizations with objectives other than profits frequently rely on different forms of compensation than their for-profit rivals.

Keywords: Managerial compensation; Intrinsic motivation; Socially concerned firms; Strategic incentives in duopoly (search for similar items in EconPapers)
JEL-codes: D43 L13 L21 M12 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:94:y:2021:i:c:p:473-482

DOI: 10.1016/j.econmod.2020.11.002

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