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Product-Market Competition and Managerial Autonomy

Christian Ruzzier ()

No 09-082, Harvard Business School Working Papers from Harvard Business School

Abstract: It is often argued that competition forces managers to make better choices, thus favoring managerial autonomy in decision making. I formalize and challenge this idea. Suppose that managers care about keeping their position or avoiding interference, and that they can make strategic choices that affect both the expected profits of the firm and their riskiness. Even if competition at first pushes the manager towards profit maximization as commonly argued, I show that further increases in competitive forces might as well lead him to take excessive risks if the threat on his position is strong enough. To curb this possibility, the principal-owner optimally reduces the degree of autonomy granted to the manager. Hence higher levels of managerial autonomy are more likely for intermediate levels of competition.

Keywords: product-market competition; authority; decision making; delegation; autonomy (search for similar items in EconPapers)
JEL-codes: D23 L22 M12 M21 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2009-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-lab and nep-mic
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