PUB - Publikationen an der Universität Bielefeld

We aim to study the impact of remuneration schemes on the decision of firm managers concerning the amounts of long-term investment, which is expected to have positive impact on the firm productivity and competitiveness in the long run, and financial short-term investment, in particular share buybacks aimed at increasing the share price of the firm. The model we have designed and implemented considers this question in the framework of an oligopolistic industry with competing firms, which allows to capture the trade-off between short term financial gains for managers and the long term effects on a firm's competitiveness. This is particularly interesting when considering the dynamic competition between firms which are characterized by different incentive schemes for firm managers. In this respect the model also allows to study the effect of different profiles of remuneration schemes in the industry on the growth rate of productivity. We model long term investments in a simple reduced form, assuming that such investment with some probability increases the firm's productivity. In this sense the long-term investment here covers both investment in R&D and in the build-up of human capital.