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Endogenous managerial compensation contracts in experimental quantity-setting duopolies

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Barreda-Tarrazona, I., Georgantzis, N., Manasakis, C., Mitrokostas, E. and Petrakis , E. (2016) Endogenous managerial compensation contracts in experimental quantity-setting duopolies. Economic Modelling, 54. pp. 205-217. ISSN 0264-9993

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To link to this item DOI: 10.1016/j.econmod.2015.12.028

Abstract/Summary

Given the ongoing debate on managerial compensation schemes, our paper offers empirical insights on the strategic choice of firms' owners over the terms of a managerial compensation contract, as a commitment device aiming at gaining competitive advantage in the product market. In a quantity setting duopoly we experimentally test whether firms' owners compensate their managers through contracts combining own profits either with revenues or with relative performance, and the resulting managerial behaviour in the product market. Prominent among our results is that firms' owners choose relative performance over profit revenue contracts more frequently. Further, firms' owners successfully induce a more aggressive behaviour by their managers in the market, by setting incentives which deviate from strict profit maximization.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Life Sciences > School of Agriculture, Policy and Development > Economic and Social Sciences Division > Food Economics and Marketing (FEM)
ID Code:50059
Publisher:Elsevier

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