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Commitment in R&D tournaments via strategic delegation to overoptimistic managers

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  • Florian Englmaier

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. Copyright (C) 2010 John Wiley & Sons, Ltd.

Suggested Citation

  • Florian Englmaier, 2011. "Commitment in R&D tournaments via strategic delegation to overoptimistic managers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 32(1), pages 63-69, January.
    • Handle: RePEc:wly:mgtdec:v:32:y:2011:i:1:p:63-69
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    File URL: http://hdl.handle.net/10.1002/mde.1518
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    Cited by:

    1. Kojun Hamada, 2021. "Cooperative managerial delegation revisited: Including the firm's cost as a managerial objective," Bulletin of Economic Research, Wiley Blackwell, vol. 73(2), pages 171-178, April.
    2. Chen, Weiwei & Grove, Wayne A. & Hussey, Andrew, 2017. "The role of confidence and noncognitive skills for post-baccalaureate academic and labor market outcomes," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 10-29.
    3. Otto, Clemens A., 2014. "CEO optimism and incentive compensation," Journal of Financial Economics, Elsevier, vol. 114(2), pages 366-404.
    4. Ivana Vitanova, 2022. "CEO overconfidence and corporate tournaments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1423-1438, July.
    5. Tolossa Fufa Guluma, 2021. "The impact of corporate governance measures on firm performance: the influences of managerial overconfidence," Future Business Journal, Springer, vol. 7(1), pages 1-18, December.
    6. Meccheri Nicola, 2023. "On the Social Desirability of Centralized Wage Setting when Firms are Run by Biased Managers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 23(3), pages 701-725, July.
    7. Malmendier, Ulrike M. & Pezone, Vincenzo & Zheng, Hui, 2020. "Managerial Duties and Managerial Biases," CEPR Discussion Papers 14929, C.E.P.R. Discussion Papers.
    8. Juan Carlos Bárcena‐Ruiz & Amagoia Sagasta, 2021. "Cross‐ownership and corporate social responsibility," Manchester School, University of Manchester, vol. 89(4), pages 367-384, July.
    9. repec:bla:annpce:v:89:y:2018:i:1:p:235-249 is not listed on IDEAS
    10. Elizabeth Schroeder & Carol Horton Tremblay & Victor J. Tremblay, 2022. "CEO Bias and Product Substitutability in Oligopoly Games," Games, MDPI, vol. 13(2), pages 1-23, March.
    11. Dimitry Rtischev, 2012. "Strategic commitment to pursue a goal other than profit in a Cournot duopoly," Gakushuin Economic Papers, Gakushuin University, Faculty of Economics, vol. 49(2), pages 133-142.
    12. Elizabeth Schroeder & Carol Horton Tremblay & Victor J. Tremblay, 2021. "Confidence bias and advertising in imperfectly competitive markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 885-897, June.
    13. Jean‐Baptiste Tondji, 2022. "Overconfidence and welfare in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(3), pages 751-767, April.
    14. Nicola Meccheri, 2021. "Biased managers in vertically related markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 724-736, April.
    15. Nicola Meccheri, 2019. "Biased managers in a vertical structure," Working Paper series 19-12, Rimini Centre for Economic Analysis.
    16. Citci, Sadettin Haluk & Inci, Eren, 2016. "Career concerns and Bayesian overconfidence of managers," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 137-159.
    17. Kopel, Michael & Brand, Björn, 2012. "Socially responsible firms and endogenous choice of strategic incentives," Economic Modelling, Elsevier, vol. 29(3), pages 982-989.
    18. Bárcena-Ruiz, Juan Carlos & Sagasta, Amagoia, 2021. "Environmental policies with consumer-friendly firms and cross-ownership," Economic Modelling, Elsevier, vol. 103(C).

    More about this item

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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