Prisoner dilemma in a vertical duopoly with managerial delegation

Delegating managerial tasks is essential for firm growth. Most firms in developing countries, however, do not hire outside managers but instead rely on family members. In this paper, we ask if this lack of managerial delegation can explain why firms in poor countries are small and whether it has important aggregate consequences. We construct a model of firm growth where entrepreneurs have a fixed time endowment to run their daily operations. As firms grow large, the need to hire outside managers increases. Firms’ willingness to expand therefore depends on the ease with which delegation can take place. We calibrate the model to plant-level data from the United States and India. We identify the key parameters of our theory by targeting the experimental evidence on the effect of managerial practices on firm performance from Bloom et al. (2013). We find that inefficiencies in the delegation environment account for 11 percent of the income per capita difference between the United States and India. They also contribute to the small size of Indian producers, but would cause substantially more harm for US firms. The reason is that US firms are larger on average and managerial delegation is especially valuable for large firms, thus making delegation efficiency and other factors affecting firm growth complements. (JEL D22, G32, L25, L26, O14)

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Managerial Delegation in an International Mixed Duopoly with Price Competition

Firms` Strategic Decisions Theoretical and Empirical Findings - Firms` Strategic Decisions Theoretical and Empirical Findings Volume 3 ◽

10.2174/9781681086255118030011 ◽

2018 ◽

pp. 144-153

Keyword(s):

Price Competition ◽

Mixed Duopoly ◽

Managerial Delegation

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Relational Contracts and Managerial Delegation: Evidence from Foreign Entrepreneurs in Russia

Organization Science ◽

10.1287/orsc.2019.1329 ◽

2020 ◽

Vol 31 (3) ◽

pp. 628-648

Author(s):

Elena Kulchina ◽

Joanne Oxley

Keyword(s):

Local Market ◽

Entrepreneurial Firms ◽

Market Conditions ◽

Industry Growth ◽

Relational Contract ◽

Local Product ◽

Managerial Delegation ◽

Court Proceedings ◽

Soviet Russia ◽

Foreign Entrepreneurs

We examine the managerial delegation decisions of foreign entrepreneurs and assess how these decisions are shaped by characteristics of the local product and labor market environment. We argue that actual or perceived home bias in court proceedings leads foreign entrepreneurs to place little reliance on formal contracts in their dealings with local agent-managers. Adopting the lens of relational contract theory, we develop hypotheses linking managerial delegation decisions to market conditions associated with stable self-enforcing agreements and test the hypotheses in the context of post-Soviet Russia. Consistent with our arguments, we find that foreign entrepreneurs are more likely to hire an agent-manager in local markets where industry growth creates a substantial “shadow of the future,” where managers’ outside employment options are relatively limited, and where competition and the variability of returns are not so high as to induce defection from an informal agreement. Similar observations on a sample of Russian-owned entrepreneurial firms suggest that these delegation decisions are relatively insensitive to local market conditions but that they are influenced by the density of local reputation networks. Our study thus contributes to understanding of the distinctive features of foreign entrepreneurs’ managerial delegation decisions and reinforces the view that contracting impediments constitute one important aspect of the “liability of foreignness” for entrepreneurial firms.

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Managerial Delegation Contracts, “Green” R&D and Emissions Taxation

The B E Journal of Theoretical Economics ◽

10.1515/bejte-2017-0128 ◽

2018 ◽

Vol 19 (2) ◽

Author(s):

Joanna Poyago-Theotoky ◽

Soo Keong Yong

Keyword(s):

Social Welfare ◽

Managerial Compensation ◽

Cournot Duopoly ◽

Emissions Tax ◽

Managerial Delegation ◽

Sales Compensation ◽

Firm Owners

Abstract We introduce an explicit environmental incentive into a managerial compensation contract in the context of a Cournot duopoly with pollution externalities under an emissions tax regime. We show that, depending on the effectiveness of “green” R&D, compared to a standard sales compensation contract, the explicit environmental focused contract results in more abatement. As a consequence, the regulator sets a lower emissions tax, and social welfare is higher. Moreover, in general, firm owners earn higher profits when adopting the environmental delegation contract.

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