Journal article
Strategic incentives for innovations and market competition
International journal of industrial organization, v 52, pp 427-449
May 2017
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
•Agency theory with product market competition.•Each firm hires a risk-averse manager to conduct cost-reducing R&D.•Relationship between risk and incentives can be either positive or negative.•Empirical implications regarding how risk affects incentives.•It also has policy implications regarding the effect of risk on innovation.
We consider a principal–agent model to provide a general analysis of how risk affects incentives of firms who invest in cost-reducing R&D and compete in the product market. We specify the conditions under which higher risk reduces incentives of all firms. We also examine the conditions under which an increase in risk may trigger opposite responses of rivals in the same industry: some firms will strengthen while other firms will weaken the incentives provided to their agents. This result holds regardless of the mode of competition in the product market, Cournot or Bertrand, as long as the rivals’ R&D decisions are strategic substitutes. It can generate new empirical implications and can provide an explanation for the lack of strong empirical support in the literature for a negative relationship between risk and incentives. We also discuss policy implications regarding the effect of risk on the incentives to innovate and welfare.
Metrics
Details
- Title
- Strategic incentives for innovations and market competition
- Creators
- Evangelia Chalioti - Yale UniversityKonstantinos Serfes - Drexel University
- Publication Details
- International journal of industrial organization, v 52, pp 427-449
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000404322400015
- Scopus ID
- 2-s2.0-85018864815
- Other Identifier
- 991019168342904721
UN Sustainable Development Goals (SDGs)
This publication has contributed to the advancement of the following goals:
InCites Highlights
Data related to this publication, from InCites Benchmarking & Analytics tool:
- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Economics