Managerial optimism and investment choice

✍ Scribed by Florian Englmaier

• Book ID: 102501833
• Publisher: John Wiley and Sons
• Year: 2010
• Tongue: English
• Weight: 171 KB
• Volume: 31
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/mde.1498

✦ Synopsis

Abstract

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.