✦ LIBER ✦
Commitment in R&D tournaments via strategic delegation to overoptimistic managers
✍ Scribed by Florian Englmaier
- Publisher
- John Wiley and Sons
- Year
- 2010
- Tongue
- English
- Weight
- 134 KB
- Volume
- 32
- Category
- Article
- ISSN
- 0143-6570
- DOI
- 10.1002/mde.1518
No coin nor oath required. For personal study only.
✦ Synopsis
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.