Contract competition between hierarchies, managerial compensation and imperfectly correlated shocks

Michela Cella () and Federico Etro ()
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Michela Cella: University of Milan-Bicocca

Journal of Economics, 2016, vol. 118, issue 3, No 1, 193-218

Abstract: Abstract We analyze competition through incentive contracts for managers in duopoly. Privately informed managers exert surplus enhancing effort 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 differentials in managerial compensations between efficient and inefficient managers. In the second case, as with large contractual spillovers, the opposite occurs.

Keywords: Oligopoly; Screening; Two way distortion; Incentives; Investments (search for similar items in EconPapers)
JEL-codes: D21 D82 D86 L13 L22 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Contract Competition between Hierarchies, Managerial Compensation and Imperfectly Correlated Shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:118:y:2016:i:3:d:10.1007_s00712-016-0472-x

DOI: 10.1007/s00712-016-0472-x

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