Bargaining over managerial contracts in delegation games: managerial power, contract disclosure and cartel behavior Export

@article{VWSetal07, abstract = {Modern corporate governance codes include clauses requiring the disclosure of managerial compensation. Such codes have been installed to protect shareholders' interests. In this paper, we explore the impact of such disclosure on consumer welfare. We consider two-stage delegation games in which owner-shareholders negotiate about compensation with their managers in the game's first stage. At the end of the first stage, the managerial compensation contract outcomes of the bargaining process are publicly announced. In the second stage, Cournot competition evolves. We prove that sales delegation generates equilibria radically different from relative performance delegation. Using classical Cournot as the benchmark, contractual bargaining over sales compensation gives tougher product market competition - and hence higher consumer surplus. The opposite holds true for relative performance delegation. Then, cartel behavior is promoted, reducing consumer surplus. Copyright {\copyright} 2007 John Wiley \& Sons, Ltd.}, address = {University of Antwerp, Antwerp, Belgium; University of Maastricht, Maastricht, The Netherlands; University of Groningen, Groningen, The Netherlands}, author = {van Witteloostuijn, Arjen and Jansen, Thijs and van Lier, Arie}, citeulike-article-id = {3475394}, citeulike-linkout-0 = {http://dx.doi.org/10.1002/mde.1366}, citeulike-linkout-1 = {http://www3.interscience.wiley.com/cgi-bin/abstract/114803750/ABSTRACT}, doi = {10.1002/mde.1366}, journal = {Managerial and Decision Economics}, keywords = {orgtheory, phdcourse}, number = {8}, pages = {897--904}, posted-at = {2008-11-03 15:45:38}, priority = {2}, title = {Bargaining over managerial contracts in delegation games: managerial power, contract disclosure and cartel behavior}, url = {http://dx.doi.org/10.1002/mde.1366}, volume = {28}, year = {2007} }

TY - JOUR ID - VWSetal07 L3 - citeulike-article-id:3475394 N2 - Modern corporate governance codes include clauses requiring the disclosure of managerial compensation. Such codes have been installed to protect shareholders' interests. In this paper, we explore the impact of such disclosure on consumer welfare. We consider two-stage delegation games in which owner-shareholders negotiate about compensation with their managers in the game's first stage. At the end of the first stage, the managerial compensation contract outcomes of the bargaining process are publicly announced. In the second stage, Cournot competition evolves. We prove that sales delegation generates equilibria radically different from relative performance delegation. Using classical Cournot as the benchmark, contractual bargaining over sales compensation gives tougher product market competition - and hence higher consumer surplus. The opposite holds true for relative performance delegation. Then, cartel behavior is promoted, reducing consumer surplus. Copyright © 2007 John Wiley & Sons, Ltd. IS - 8 JF - Managerial and Decision Economics AD - University of Antwerp, Antwerp, Belgium; University of Maastricht, Maastricht, The Netherlands; University of Groningen, Groningen, The Netherlands EP - 904 TI - Bargaining over managerial contracts in delegation games: managerial power, contract disclosure and cartel behavior VL - 28 SP - 897 KW - orgtheory KW - phdcourse AU - van Witteloostuijn, Arjen AU - Jansen, Thijs AU - van Lier, Arie PY - 2007/// UR - http://dx.doi.org/10.1002/mde.1366 ER -