Managerial Incentives and Collusive Behavior

31 Pages Posted: 6 Sep 2004

See all articles by Giancarlo Spagnolo

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: July 2004

Abstract

I characterize the effects of empirically observed managerial incentives on long-run oligopolistic competition. When managers have a preference for smooth time-paths of profits - as revealed by the empirical literature on 'income smoothing' - manager-led firms can sustain collusive agreements at lower discount factors. Capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor, independent of contracts' duration. When managers have these preferences/incentives and demand fluctuates, 'price wars during booms' need not occur: the most collusive price may then be pro-cyclical. Corporate governance codes invoking transparency may reinforce these effects.

Keywords: Corporate governance, delegation, earnings management, executive compensation, collusion, income smoothing, oligopoly, ownership and control

JEL Classification: D43, G30, J33, L13, L21

Suggested Citation

Spagnolo, Giancarlo, Managerial Incentives and Collusive Behavior (July 2004). Available at SSRN: https://ssrn.com/abstract=578141

Giancarlo Spagnolo (Contact Author)

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
26
Abstract Views
1,455
PlumX Metrics