Managerial Incentives, Innovation and Product Market Competition

Zhentang Zhang

No 295, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper investigates the strategic value of the managerial incentive scheme in affecting firms' incentive in R&D investment and their product market activities. Firstly, we find that in Cournot-quantity competition, owners strategically assign a non-profitmaximization objective to their managers. Consequently, managers in a delegation game invest more in cost-reducing R&D, and have higher output, lower prices and lower profits, as compared to profit-maximizers in a owner-run game. Secondly, we find that R&D collusion induces owners in a delegation game to choose more aggressive managerial incentives as compared to R&D competition, which in turn leads to increased R&D investment, reduced product prices and increased profits.

Keywords: Strategic Delegation; Managerial Incentives; R&D competition and R&D collusion. (search for similar items in EconPapers)
JEL-codes: C72 D20 L22 O32 (search for similar items in EconPapers)
Pages: 20 p.
Date: 2002
New Economics Papers: this item is included in nep-lab and nep-tid
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