The Benefit and Cost of Winner Picking: Redistribution Vs Incentives

Axel Gautier () and Florian Heider

No 31/2002, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: The Benefit and Cost of Winner Picking: Redistribution Vs Incentives |AB| A multi-divisional firm can engage in "winner-picking" to redistribute scarce funds efficiently across divisions. But there is a conflict between rewarding winners (investing) and producing resources internally to reward winners (incentives). Managers in winning divisions are tempted to free-ride on resources produced by managers in loosing divisions whose incentives to produce resources, anticipating their loss, are also weakened. Corporate headquarter's investment and incentive policy are therefore inextricably linked and have to be treated as jointly endogenous. The analysis links corporate strategy, compensation and the value of diversification to the characteristics of multi-divisional firms.

Keywords: Conglomerate; Internal capital market (search for similar items in EconPapers)
JEL-codes: G31 G34 L23 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (5)

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