We investigate how market competition affects the incentive to adopt a non-profit-maximizing behaviour. The analysis is developed in a strategic delegation framework in which owners delegate output decisions to managers interested in firm's relative performance. We study how the optimal delegation scheme is affected by market concentration and the elasticity of market demand. We prove that the distortion from a profit-maximizing rule decreases as market becomes less concentrated, while it increases as demand becomes more elastic. Finally, we discuss the impact of market competitiveness on the welfare-enhancing ability of delegation contracts. Codice Scopus: 2-s2.0-80054752522
Competition and the strategic choice of managerial incentives: the relative performance case
CHIRCO, Alessandra;SCRIMITORE, Marcella
2011-01-01
Abstract
We investigate how market competition affects the incentive to adopt a non-profit-maximizing behaviour. The analysis is developed in a strategic delegation framework in which owners delegate output decisions to managers interested in firm's relative performance. We study how the optimal delegation scheme is affected by market concentration and the elasticity of market demand. We prove that the distortion from a profit-maximizing rule decreases as market becomes less concentrated, while it increases as demand becomes more elastic. Finally, we discuss the impact of market competitiveness on the welfare-enhancing ability of delegation contracts. Codice Scopus: 2-s2.0-80054752522I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
