Document Type

Article

Publication Date

7-2021

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

© 2021 John Wiley & Sons, Ltd. Original published version available at https://doi.org/10.1002/mde.3416

Publication Title

Managerial and Decision Economics

DOI

10.1002/mde.3416

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Available for download on Sunday, July 02, 2023

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