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"Green" managerial delegation theory

Domenico Buccella (), Luciano Fanti and Luca Gori ()

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: Is it profitable to include an environmental ("green") incentive in a managerial contract when a dirty technology causes pollution externality, and the government levies an emissions tax? This research considers a non-cooperative Cournot duopoly game in which owners choose whether to delegate output and the abatement choices to their managers to address the above question. When the societal (or public) evaluation of the environmental damage is sufficiently low, two symmetric equilibria emerge (both firms are either "green" or "polluting"); when the public environmental concern becomes larger, the "green" delegation is the unique Nash equilibrium, which is Pareto inefficient (resp. efficient) for intermediate (resp. high) values of the government's weight towards the environment. Differently, in a managerial duopoly where owners delegate only sales or sales and abatement, sales delegation arises in equilibrium; however, firms face a Prisoner's Dilemma because "green" delegation yields higher profits.

Keywords: Green managerial delegation; Abatement; Emissions tax; Cournot duopoly (search for similar items in EconPapers)
JEL-codes: H23 L1 M5 Q58 (search for similar items in EconPapers)
Date: 2020-10-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-gth
Note: ISSN 2039-1854
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