ABSTRACT
This chapter discusses the role of strategic delegation in shaping firms’ innovation incentives. Hutton forcefully stressed that firms where managers are driven to adopt a short-run profit-maximizing perspective are consequently less prone to reinvesting profits in long-run risky Research and development (R&D) projects instead of leaving the same profits to the distribution of dividends. Lambertini and Primavera also considered the scenario in which a firm may decide to separate control from ownership and undertake a costly R&D project. Barcena-Ruiz and Olaizola studied the incentives of managerial firms using revenue-based contracts towards the adoption of technologies with different marginal costs, the more efficient one requiring a sunk investment cost. They found that if the degree of product differentiation is high, the incentive to adopt the cost-saving technology is larger under strict profit maximization.
