Reference : The benefit and cost of winner-picking: Redistribution vs. Incentives
Scientific journals : Article
Business & economic sciences : Finance
http://hdl.handle.net/2268/20713
The benefit and cost of winner-picking: Redistribution vs. Incentives
English
Gautier, Axel mailto [Université de Liège - ULg > HEC-Ecole de gestion de l'ULg : UER > Economie industrielle >]
Heider, Florian [> >]
Dec-2009
Journal of Institutional and Theoretical Economics = Zeitschrift für die Gesamte Staatswissenschaft
165
4
622-649
Yes
International
0932-4569
[en] Internal capital market ; incentive ; winner-picking
[en] This paper examines the agency cost of winner-picking in multidivision firms and uses explicit incentive contracts to analyze the interaction between corporate headquarters' investment and incentive policies. Winner-picking, i.e. the efficient reallocation of scarce resources in an internal capital market, adds an extra layer of noise to the moral hazard problem of incentivizing division managers to produce the resources that can then be redistributed. In particular, division managers with strong future investment opportunities anticipate that headquarters will bail them out should they fail to produce enough resources themselves. This reduces incentives to create the resources in the first place with possible consequences for the optimal investment policy.
Centre de Recherche en Économie Publique et de la Population - C.R.E.P.P
Researchers
http://hdl.handle.net/2268/20713
10.1628/093245609789919603

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