Overconfidence and welfare in a differentiated duopoly

Authors

Jean-Baptiste Tondji, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

4-2022

Abstract

We examine whether owners' decisions to delegate corporate responsibilities to overconfident managers improve welfare. We develop a dynamic model with product differentiation, where firms compete in cost-reducing research and development (R&D) and output. Before firms compete, each owner makes a strategic decision whether to hire an overconfident manager. The results reveal that when R&D technology is less productive, owners hire overconfident managers who overinvest in cost-reducing R&D. These strategic decisions improve welfare when spillovers are small and R&D productivity is low, or spillovers are large, or product differentiation is strong.

Comments

Original published version available at https://doi.org/10.1002/mde.3416

https://onlinelibrary.wiley.com/share/SICUQ4YUFMYHUJ3NXCAJ?target=10.1002/mde.3416

Recommended Citation

Tondji, J.-B. (2022). Overconfidence and welfare in a differentiated duopoly. Managerial and Decision Economics, 43(3), 751–767. https://doi.org/10.1002/mde.3416

Publication Title

Managerial and Decision Economics

DOI

10.1002/mde.3416

Previous Versions

Submitted Version / Pre-Print