DO MANAGERS WORK HARDER IN COMPETITIVE INDUSTRIES

We analyze the relationship between product market competition and man agerial effort in a linear principal-agent model. Firms compete in a d ifferentiated Cournot oligopoly. We use two competition indexes: the d egree of product differentiation and the number of firms. An increase in competition stemming from a lower degree of product differentiation reduces the optimal level of effort, while an increase in competition from more firms has an ambiguous effect. An increase in the number of firms reduces (increases) effort when the degree of product different iation is low (high). (C) 1998 Elsevier Science B.V.