Innovation and Managerial Incentives: A Tale of Two Systems

Abstract

This paper describes R&D competition between a managerial firm and an entrepreneurial one, in a Cournot market. It is shown that a manager interested in output expansion exerts higher R&D efforts, yielding productive efficiency as compared to the performance of a strictly profit-seeking firm. This may ultimately yield monopoly power for the managerial firm, if technological spillovers in the industry are low enough.