Review of Economic Studies Vol. 64 No. 2 1997
Managerial Incentives and Product Market Competition
Abstract
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. I identify natural circumstances where increasing 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.
- DOI
- 10.2307/2971709
- Volume
- 64
- Issue
- 2
- Pages
- 191
- Sources
- bibtex:phds-export.bib openalex crossref