Why Whine About Wining and Dining?
22 Pages Posted: 8 Aug 2014
Date Written: August 6, 2014
Given potential abuse, conflicts of interest, and other issues, why do companies routinely pay for their managers to entertain the managers of other firms and allow their own managers to be so entertained? An answer that such practices facilitate inter-firm cooperation is incomplete because it fails to address why companies can’t or don’t induce such cooperation directly via their own incentive systems. This paper addresses these issues. It shows, inter alia, that even when firms can induce cooperation via their own incentive systems, they will do better obtaining that cooperation via cross- firm entertaining and other favor granting. This remains true even if “entertainment” budgets are subject to corruption, including excessive use or potential embezzlement. Furthermore, the results are wholly independent of any favorable tax treatment such practices may receive.
Keywords: Inter-firm cooperation, incentives to help, gift exchange
JEL Classification: D82, D86, L14, L24, M52
Suggested Citation: Suggested Citation