We study the production decisions of managers in an experimental Cournot market as a function of the ownership structure of the experimental firms as well as of a variety of corporate governance mechanisms. In the baseline, the primary outcomes are managerial choices of production output and the market outcome in terms of product prices. In later settings, the choice of compensation structure, communication, and shareholdings are outcomes.
The objective is to research which governance mechanisms are important in translating changes in ownership structure to changes in firm behaviour. We also aim to evaluate a variety of policy proposals, including researching which ownership structures endogenously emerge when restrictions on voting rights are implemented.
In the baseline, there are two firms, managed by two experimental managers and owned by two shareholders. Managers choose production quantities. Shareholdings are exogenously assigned at first, and in later trials endogenously chosen by experimental shareholders. Ownership structure can either be divided (each shareholder owns 100% of one firm) or common (each shareholder owns 50% of both firms). In terms of governance mechanisms, we study, among others, doing nothing (other than information about shareholdings), management compensation (exogenously assigned, and later endogenously chosen by shareholders); communication between shareholders and firms (dito); as well as policy interventions (restrictions on voting rights for diversified investors).
In future trials, we plan to also allow for dynamic considerations, social interactions, relative performance comparisons of managers, and other variations.
In the first set of 6 experiments, we first vary just shareholdings. Compensation are fixed (not depending on firm profits) in one subset of settings, or alternatively based on the profit of only one or two firms (set so that managers maximise their own salary by maximising the profit of both firms rather than just their own firm), in the alternative treatments. We will run one session per treatment.
We have no eligibility criteria and are interested in a general population. In follow-up trials, we will recruit economics students and industry professionals to play the same games, to investigate external validity. In all trials, we will examine gender differences.
We will recruit 400 subjects per treatment for a total of 2400 subjects.