Efficiency of bilateral delegation in a mixed Cournot duopoly

Corrado Benassi, Alessandra Chirco and Caterina Colombo

Metroeconomica, 2021, vol. 72, issue 3, 493-508

Abstract: We consider a bilateral delegation mixed duopoly with quantity setting, where the objective function of the public managers is based on strategic manipulation of a Generalized Welfare Function. We show that such manipulation, coupled with strategic delegation by the private firm, enables the government to enforce an efficient outcome at equilibrium. When the manipulation/delegation choices and their sequence are endogenized, public manipulation and private delegation are supported at equilibrium, with the government, as first mover, setting the weights of the Generalized Welfare Function at the most efficient level consistent with private firm retaining a manager. This ensures maximum welfare, as compared with all other organizational structures.

Date: 2021
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