Commitment in R&D tournaments via strategic delegation to overoptimistic managers

Florian Englmaier

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: This paper shows that it is profitable for a firm to hire an overoptimistic manager to commit to a certain investment strategy in an R&D tournament situation. In the unique symmetric equilibrium, all firms delegate to overoptimistic managers, where the optimal degree of overoptimism depends on the riskiness of the tournament. In these situations a manager's type may serve as a substitute for delegation via contracts. By delegating to overoptimistic managers, firms can escape the rat race nature of R&D tournaments. Copyright © 2010 John Wiley & Sons, Ltd.

Date: 2011
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Citations: View citations in EconPapers (19)

Published in Managerial and Decision Economics 1 32(2011): pp. 63-69

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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:22011

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