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

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

Author(s) -

Englmaier Florian

Publication year - 2011

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.1518

Subject(s) - delegation , microeconomics , economics , industrial organization , business , mathematical economics , management , business administration

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 © 2010 John Wiley & Sons, Ltd.

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