Spatial competition and the duration of managerial incentive contracts

Juan Bárcena-Ruiz and F. Casado-Izaga

Investigaciones Economicas, 2005, vol. 29, issue 2, 331-349

Abstract: We consider a duopoly model of spatial competition in which the owners of the firms can strategically use two variables: the duration of managerial incentive contracts and the location of the firms. In equilibrium, one owner chooses a long-term incentive contract for his manager (becoming a leader in incentives), while the other (the follower) chooses short-term contracts. Both firms are located outside the city boundaries, but the leader locates its firm closer to the market than the follower and encourages its manager to be less aggressive than the follower’s manager. As a result, in contrast to the conventional wisdom, under Bertrand competition the leader obtains higher profits than the follower. (Copyright: Fundación SEPI)

Keywords: Managerial incentives; product di erentiation; strategic delegation. (search for similar items in EconPapers)
JEL-codes: D43 L13 L20 (search for similar items in EconPapers)
Date: 2005
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