Commitment in R&D Tournaments via Strategic Delegation to Overoptimistic Managers

Englmaier, Florian (July 2010): Commitment in R&D Tournaments via Strategic Delegation to Overoptimistic Managers. SFB/TR 15 Discussion Paper No. 328

Abstract

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.

• Item Type: Paper (Discussion Paper)
• Keywords: Strategic Delegation, Overoptimism, Tournaments
• Collections: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A4 - Unvollständige Verträge, Marktinteraktion und soziale Vergleichsprozesse
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: J 32, J 33, M 12
• Language: English