This work anlyzes a managerial delegation model in wich firms can choose between a flexible production technology wich allows them to produce two different products and a dedicated production technology wich limits production to only one product. By giving firms\' managers an incentive scheme based on a linear combination of profit and sales revenue, we find that the incentives to adopt the flexible technology are smaller than under strict profit maximization. Moreover, the asymmetric equilibrium in wich only one firm adopts the flexible technology can be sustained under strategic delegation but not under strict profit maximization when products are substitutes. We also find that market competition induces a lower adoption of flexible technologies under strategic delegation and a higher adoption under strict profit maximization than the adoption level that maximizes social welfare. However, the range of parameter values for wich the equilibrium technology choice is non-efficient is lager under strategic delegation than under strict profit maximization.
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Paper provided by Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I in its series IKERLANAK with number
200413.
Order Information: Postal: Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain Email:
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