Strategic Delegation in Experimental Markets
19 Pages Posted: 22 Mar 2001
Date Written: May 2000
In this experiment, we analyze strategic delegation in a Cournot duopoly. Owners can choose among two different contracts which determine their managers' salaries. One contract simply gives managers incentives to maximize firm profits, while the second contract gives an additional sales bonus. Although theory predicts the second contract to be chosen, it is only rarely chosen in the experimental markets. This behavior is rational given that managers do not play according to the subgame perfect equilibrium prediction when asymmetric contracts are given.
Keywords: Strategic Delegation, Managerial Incentives, Experimental Economics
JEL Classification: C72, C92, D21, D43
Suggested Citation: Suggested Citation