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Endogenous managerial compensation contracts in experimental quantity-setting duopolies

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


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
Divisions:Life Sciences > School of Agriculture, Policy and Development > Department of Agri-Food Economics & Marketing
ID Code:50059


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