Commitment in R&D Tournaments via Strategic Delegation to Overoptimistic Managers

Florian Englmaier

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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.

Keywords: Strategic Delegation; Overoptimism; Tournaments (search for similar items in EconPapers)
JEL-codes: J32 J33 M12 (search for similar items in EconPapers)
Date: 2010-07
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https://epub.ub.uni-muenchen.de/13226/1/328.pdf (application/pdf)

Related works:
Working Paper: Commitment in R&D tournaments via strategic delegation to overoptimistic managers (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:328

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