Logo Logo
Switch Language to German
Schmidt, Klaus M. ORCID: 0000-0002-5011-0828 (1996): Managerial Incentives and Product Market Competition. Discussion Paper / Centre for Economic Policy Research (CEPR), 1382
WarningThere is a more recent version of this item available.
Full text not available from 'Open Access LMU'.


The paper shows that an increase in competition has two effects on managerial incentives: it increases the probability of liquidation, which has a positive effect on managerial effort, but it also reduces the firm’s profits, which may make it less attractive to induce high effort. Thus, the total effect is ambiguous. The paper identifies natural circumstances where increased competition unambiguously reduces managerial slack. In general, however, this relation need not be monotonic. A simple example demonstrates that – starting from a monopoly – managerial effort may increase as additional competitors enter the market, but will eventually decrease when competition becomes too intense. ; Competition; Managerial Incentives; Moral Hazard

Available Versions of this Item