Biased Managers and Endogenous Delegation

Kangsik Choi

Metroeconomica, 2025, vol. 76, issue 4, 503-512

Abstract: We analyze the endogenous choice of hiring managers who have biased market demand under Bertrand competition. Contrary to previous findings, asymmetric equilibria emerge in which only one firm chooses to delegate. By introducing customary beliefs into model—where the owner correctly anticipates the intercept of the rival manager of firm's market demand—firms gain incentives to hire overconfident managers to restrict output. As a result, not all firms are simultaneously motivated to delegate for strategic reasons. In equilibrium, overconfident managers are more likely to lead their firms in ways that reduce consumer and total welfare.

Date: 2025
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