THE BABU AND THE BOXWALLAH MANAGERIAL INCENTIVES AND GOVERNMENT INTERVENTION

Kaushik Basu, Arghya Ghosh and Tridip Ray

No 1, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: A game is modelled where the government confronts a monopoly. The latter chooses price and maximises profit and the former chooses the ad valorem tax rate and maximises the tax-revenue collected. We allow the government and the monopoly to delegate the final decision-making to, respectively, a bureaucrat and a manager. The incentive equilibrium of the model is characterised. It is shown that the ability to delegate decisions heightens the inefficiencies that arise from a monopoly.

Pages: 16 pages
Date: 1994-01
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Citations: View citations in EconPapers (1)

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