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Michael Kopel and Christian Riegler

This paper considers a strategic delegation setting with R&D spillovers in a Cournot market. The game we analyze has four stages. First, owners have the option to hire a…

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This paper considers a strategic delegation setting with R&D spillovers in a Cournot market. The game we analyze has four stages. First, owners have the option to hire a manager. If they decide to delegate, then in the contracting stage they have to determine the optimal incentives for the managers. In the R&D stage, the levels of investments in research and development are chosen which reduce production costs. Finally, in the production stage quantities offered on the market are selected. We characterize the sub-game perfect outcomes of this game depending on the level of R&D spillovers and derive the following main insights. First, in a case where no spillovers exist, both owners have the incentive to delegate R&D and production decisions to managers. This leads to higher outputs, higher R&D activities, but lower profits for the firms in comparison with an entrepreneurial (owner-managed) firm. These results still hold if the basic production unit costs are high, independent of the existence of spillovers. In these cases delegation leads to an increase in social welfare. Second, we demonstrate that when spillovers exist and basic unit production costs are low, then there are situations where owners delegate but discourage managers from being aggressive. This “soft” commitment leads to lower outputs, lower R&D, but higher profits for the firms in comparison with an entrepreneurial firm. Here, however, delegation results in lower welfare.

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The Economics of Innovation
Type: Book
ISBN: 978-0-444-53255-8

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The Economics of Innovation
Type: Book
ISBN: 978-0-444-53255-8

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The Economics of Innovation
Type: Book
ISBN: 978-0-444-53255-8

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To meet the growing need for computer law information, West Publishing Company has announced two new books by Professor Steven L. Mandell, ‘Computers, Data Processing, and…

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To meet the growing need for computer law information, West Publishing Company has announced two new books by Professor Steven L. Mandell, ‘Computers, Data Processing, and the Law’, and ‘Computers, Data Processing, and the Law: Text and Cases’, the professional edition.

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The Electronic Library, vol. 2 no. 3
Type: Research Article
ISSN: 0264-0473

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Advances in Accounting Education Teaching and Curriculum Innovations
Type: Book
ISBN: 978-0-76231-035-7

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At every period of time marked by years, the seasons by turns and twists in history, among country folk especially, the years of great storms and hard winters; in law…

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At every period of time marked by years, the seasons by turns and twists in history, among country folk especially, the years of great storms and hard winters; in law enforcement, the passing of some far‐reaching, profound statutory measure, there is this almost universal tendency to look back—over your shoulder‐assessing changes, progressive or otherwise, discerning trends and assaying prospects. We are about to emerge from the seventies—battered but unbowed!—into the new decade of the eighties, perhaps with a feeling that things can only get better.

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British Food Journal, vol. 81 no. 5
Type: Research Article
ISSN: 0007-070X

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