Do firms' owners delegate both short-run and long-run decisions to their managers in equilibrium?

Evangelos Mitrokostas () and Emmanuel Petrakis ()

No 815, Working Papers from University of Crete, Department of Economics

Abstract: The present paper explores the scope of strategic delegation, to the firms' R&D investments and market competition in a Cournot Oligopoly. The firms' owners' have two alternative strategies: either the Full Delegation (FD) one, in which firms' owners delegate both short-run and long-run decisions to their managers, or the Partial Delegation (PD) one, in which firms' owners delegate only short-run decisions to their managers. We investigate which delegation strategy will emerge in equilibrium, under the assumption that there is no credible commitment between the firms' owners over the strategy they will select. We find that the Universal Partial Delegation is never an equilibrium configuration. If the initial unit cost is relatively high (low), the Universal Full Delegation (Coexistence) configuration is the only endogenously emerging equilibrium. However, the above results are sensitive to the existence of the commitment assumption.

Keywords: Strategic Delegation; Oligopoly; R&D Investments; Equilibrium Delegation Schemes. (search for similar items in EconPapers)
JEL-codes: C20 C72 L22 O33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ipr and nep-mic
Date: 2008-06-17
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Persistent link: http://EconPapers.repec.org/RePEc:crt:wpaper:0815

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