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Short-termism as optimal experimentation policy

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorBrusco, Sandro
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de Economía de la Empresa
dc.date.accessioned2010-01-20T08:17:50Z
dc.date.available2010-01-20T08:17:50Z
dc.date.issued1999-01
dc.description.abstractModels of managerial short-termism rely on a number of assumption, such as limited availability of capital, fixed compensation schemes and an additive impact of managerial ability on revenue. We discuss the role of these assumption in generating short-termism. We show that when managerial ability ha a multiplicative impact on revenue then the first best investment policy may require the implementation of short-term projects with negative NPV in order to generate information on managerial ability that can be exploited in later periods. We also show that, when the firm is free to design the compensation scheme, the first best is attained even if only short-term contracts are allowed. Short-termism is therefore the result of an optimal experimentation policy rather than the consequence of managerial misbehavior.
dc.format.mimetypeapplication/pdf
dc.identifier.urihttps://hdl.handle.net/10016/6522
dc.language.isoeng
dc.relation.ispartofseriesUC3M Working papers. Business Economics
dc.relation.ispartofseries99-06-02
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEmpresa
dc.subject.otherManagerial compensation
dc.subject.otherCorporate investment policy
dc.titleShort-termism as optimal experimentation policy
dc.typeworking paper*
dspace.entity.typePublication
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