Contract Competition between Hierarchies, Managerial Compensation and Imperfectly Correlated Shocks

Michela Cella and Federico Etro ()

No 328, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We analyze competition through incentive contracts for managers in duopoly. Privately informed managers exert surplus enhancing e¤ort 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 di¤erentials 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)
Pages: 32
Date: 2016-02-07, Revised 2016-02-07
New Economics Papers: this item is included in nep-com, nep-cta, nep-hrm and nep-mic
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Journal Article: Contract competition between hierarchies, managerial compensation and imperfectly correlated shocks (2016)
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