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Delegation and Limited Liability in a Modern Capitalistic Economy

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Author Info

  • Tetsuya Shinkai

    ()
    (School of Economics, Kwansei Gakuin University)

  • Takao Ohkawa

    (Faculty of Economics, Ritsumeikan University)

  • Makoto Okamura

    (Economics Department, Ritsumeikan University and Hiroshima University)

  • Kozo Harimaya

    (Faculty of Business Administration, Ritsumeikan University)

Abstract

We examine an effect of limited liability on strategic delegation in a Cournot duopoly with demand uncertainty. We establish that owners of each firm always delegate their tasks, decisions, and responsibility to a manager under limited liability, while they do not always do so under unlimited liability. This result is consistent with the fact that separation of ownership and management as well as limited liability prevail in many modern large companies.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp87.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 87.

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Length: 33 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:kgu:wpaper:87

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Keywords: limited liability; delegation; managerial incentives; and Cournot duopoly;

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  1. Franck, Bernard & Le Pape, Nicolas, 2008. "The commitment value of the debt: A reappraisal," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 607-615, March.
  2. Spulber,Daniel F., 2009. "The Theory of the Firm," Cambridge Books, Cambridge University Press, number 9780521736602.
  3. Federico Etro, 2010. "Endogenous market structures and the optimal financial structure," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1333-1352, November.
  4. Povel, Paul & Raith, Michael, 2004. "Financial constraints and product market competition: ex ante vs. ex post incentives," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 917-949, September.
  5. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
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Cited by:
  1. Tetsuya Shinkai & Takao Ohkawa & Makoto Okamura & Kozo Harimaya, 2012. "Why did the Dutch East India Co. outperform the British East India Co.? —A theoretical explanation based on the objective of the firm and limited liability—," Discussion Paper Series 96, School of Economics, Kwansei Gakuin University, revised Dec 2012.

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