Managerial incentives and polluting Inputs under imperfect competition

Denis Claude () and Mabel Tidball ()
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Mabel Tidball: CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier

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Abstract: This paper explores the link between upstream input pricing and downstream strategic delegation decisions. It complements earlier contributions by studying how environmental emissions and tax payments alter the incentives business owners have to divert their managers from profit maximization in favor of sales revenue generation. Two scenarios are compared depending on whether the upstream supplier precommits to a fixed input price or adopts a flexible price strategy. Corresponding Subgame-Perfect Nash-Equilibria are characterized and elements of comparative statics analysis are presented. The analysis confirms that previous results—showing that a price precommitment makes the upstream supplier better off and downstream firms worse off—carry over to situations in which production generates pollution.

Keywords: Vertical relations; Precommitment; Managerial incentives; Delegation; Externality (search for similar items in EconPapers)
Date: 2019-01-01
New Economics Papers: this item is included in nep-com, nep-ene, nep-env and nep-gth
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02283174v1
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Published in Pierre-Olivier Pineau; Simon Sigué; Sihem Taboub. Games in Management Science., 280, Springer, pp.165-186, 2019, International Series in Operations Research & Management Science, 978-3-030-19106-1. ⟨10.1007/978-3-030-19107-8_10⟩

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Related works:
Chapter: Managerial Incentives and Polluting Inputs Under Imperfect Competition (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-02283174

DOI: 10.1007/978-3-030-19107-8_10

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