Delegated Management in Dynamic Oligopolies

Vladimir Petkov ()

No 79, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: This paper studies the strategic value of delegation in dynamic interactions, where principals provide managers with intertemporal incentives in order to obtain a competitive advantage. While direct management offers intertemporal commitment opportunities, the separation of ownership from production decisions allows precommitment within the current period. The solution concept of Markov-perfect equilibrium helps avoid the imposition of exogenous restrictions on the composition and the functional form of compensation contracts. The linear-quadratic game yields a tractable MPE that illustrates the properties of dynamic delegation: i) with low adjustment costs and discount factors delegating principals are able to attain output levels close to those of a Stackelberg leader; ii) managerial utility parameters affect equilibrium wages, but have no impact on production choices.

Keywords: Markov-Perfect Equilibrium; Managerial Compensation; Strategic Delegation (search for similar items in EconPapers)
JEL-codes: C73 L13 L21 (search for similar items in EconPapers)
Date: 2004-08-11
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