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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.