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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

No coin nor oath required. For personal study only.

✦ 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 Β© 2010 John Wiley & Sons, Ltd.


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