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R&D in a strategic delegation game

Author

Listed:
  • Jianbo Zhang

    (University of Kansas, USA)

  • Zhentang Zhang

    (WZB, Berlin, Germany)

Abstract

This paper studies how a separation of ownership and management affects firms' R&D and production decisions in Cournot quantity competition. It is found that when R&D spillovers are small, owners strategically direct their managers away from profit maximization towards sales. Consequently, managerial firms invest more in R&D and have higher output and lower prices compared to their entrepreneurial counterparts. On the other hand, when spillovers are large, owners 'penalize' managers for sales. In this case, managerial firms have lower R&D, lower output and higher prices. Nonetheless, managerial firms have lower profits than their entrepreneurial counterparts regardless of spillovers. This paper also examines the welfare effects of a separation of ownership and management. It is found that in terms of first-best social welfare, managerial firms are more (less) efficient than their entrepreneurial counterparts with low (high) spillovers. However, in terms of second-best social welfare, managerial firms are less efficient with all spillovers. © 1997 John Wiley & Sons, Ltd.

Suggested Citation

  • Jianbo Zhang & Zhentang Zhang, 1997. "R&D in a strategic delegation game," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 391-398.
    • Handle: RePEc:wly:mgtdec:v:18:y:1997:i:5:p:391-398
    DOI: 10.1002/(SICI)1099-1468(199708)18:5<391::AID-MDE837>3.0.CO;2-1
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    Cited by:

    1. Luciano Fanti & Marcella Scrimitore, 2017. "The endogeneous choice of delegation in a duopoly with outsourcing to the rival," Discussion Papers 2017/219, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    2. Juan Carlos Bárcena‐Ruiz & Norma Olaizola, 2006. "Cost‐Saving Production Technologies And Strategic Delegation," Australian Economic Papers, Wiley Blackwell, vol. 45(2), pages 141-157, June.
    3. Yang, Yadi, 2021. "Experiments on the hold-up problem and delegation," Other publications TiSEM b564ed18-ab0b-4eb1-8188-3, Tilburg University, School of Economics and Management.
    4. Evangelos Mitrokostas & Emmanuel Petrakis, 2014. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 1-24, January.
    5. Rupayan Pal, 2012. "Delegation And Emission Tax In A Differentiated Oligopoly," Manchester School, University of Manchester, vol. 80(6), pages 650-670, December.
    6. Michael Kopel & Clemens Löffler, 2008. "Commitment, first-mover-, and second-mover advantage," Journal of Economics, Springer, vol. 94(2), pages 143-166, July.
    7. Garcia, Arturo & Leal, Mariel & Lee, Sang-Ho & Park, Chul-Hi, 2024. "Merger incentive and strategic corporate social responsibility by a multiproduct corporation," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 193-206.
    8. Stamatopoulos, Giorgos, 2018. "Bargaining over managerial contracts: a note," MPRA Paper 86143, University Library of Munich, Germany.
    9. Mariel Leal & Arturo García & Sang-Ho Lee, 2021. "Sequencing R&D decisions with a consumer-friendly firm and spillovers," The Japanese Economic Review, Springer, vol. 72(2), pages 243-260, April.
    10. Dobson, Paul W. & Chakraborty, Ratula, 2020. "Strategic incentives for complementary producers to innovate for efficiency and support sustainability," International Journal of Production Economics, Elsevier, vol. 219(C), pages 431-439.
    11. Zhentang Zhang, 2002. "Managerial Incentives, Innovation and Product Market Competition," Discussion Papers of DIW Berlin 295, DIW Berlin, German Institute for Economic Research.
    12. Ishita Chatterjee & Bibhas Saha, 2011. "Bilateral Delegation, Wage Bargaining and Managerial Incentives: Implications for Efficiency and Distribution," University of East Anglia Applied and Financial Economics Working Paper Series 028, School of Economics, University of East Anglia, Norwich, UK..
    13. Pei-Cheng Liao, 2014. "Strategic Delegation of Multiple Tasks," Australian Economic Papers, Wiley Blackwell, vol. 53(1-2), pages 77-96, June.

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