Observable Managerial Incentives and Spatial Competition

15 Pages Posted: 13 Jan 2008

See all articles by Domenico Scalera

Domenico Scalera

University of Sannio - Faculty of Economics

Alberto Zazzaro

Polytechnic University of Marche - Faculty of Economics

Abstract

In this paper we investigate the relationship between product market competition and managerial incentives within a circular city model with observable agency contracts. With respect to the case of unobservability studied by Raith (2003), we find that optimal managerial contracts provide lower incentives, and that equilibrium expected prices and profits are higher. Changes in competition fundamentals have ambiguous effects, but observable contracts alleviate their impact on incentives. Finally, observability involves three major implications: managerial incentives are higher under price regulation than under competition; prices may increase with the number of firms; consumer welfare may diminish when competition increases.

Suggested Citation

Scalera, Domenico and Zazzaro, Alberto, Observable Managerial Incentives and Spatial Competition. Metroeconomica, Vol. 59, Issue 1, pp. 27-41, February 2008, Available at SSRN: https://ssrn.com/abstract=1082947 or http://dx.doi.org/10.1111/j.1467-999X.2007.00287.x

Domenico Scalera (Contact Author)

University of Sannio - Faculty of Economics ( email )

Via Nicola Calandra, 4
Benevento, 82100
Italy
+39 0824 305237 (Phone)
+39 0824 305315 (Fax)

Alberto Zazzaro

Polytechnic University of Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

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