Managerial optimism and investment choice | Zendy

Englmaier Florian | Zendy

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Managerial optimism and investment choice

Author(s) -

Englmaier Florian

Publication year - 2010

Publication title -

managerial and decision economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.288

H-Index - 51

eISSN - 1099-1468

pISSN - 0143-6570

DOI - 10.1002/mde.1498

Subject(s) - commit , cournot competition , delegation , competition (biology) , ex ante , microeconomics , economics , optimism , investment (military) , product (mathematics) , business , industrial organization , management , computer science , psychology , ecology , social psychology , macroeconomics , database , politics , political science , law , biology , geometry , mathematics

This paper analyzes whether it might be desirable for a firm to hire an overoptimistic manager to commit to a certain R&D strategy. I consider a Cournot model with an ex‐ante R&D stage where firms can invest in cost reduction before product market competition takes place. I show that firms want to hire overoptimistic managers and argue that a manager's type may serve as a substitute for strategic delegation via contracts. Copyright © 2010 John Wiley & Sons, Ltd.

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