The Role of Managerial Work in Market Performance: A Monopoly Model with Team Production
AbstractA monopolist is treated as a nexus of contracts with team production. It has one ownermanager. The owner-manager is the employer of two employees. A team production problem is present if the employer is a “managerial lemon”. If the team production problem is solved, the employer is a “managerial hotshot”. Both a managerial hotshot and a managerial lemon are found to make profit. Managerial slack can therefore exist in our monopoly market. In the case of a managerial lemon, the profit level is lower. However, the employees’ utility level is higher. Whereas the employer has an incentive to improve management capability in principle, the employees have an incentive to keep management capability low. Moreover, the cost of improving management capability may be prohibitively high. Managerial slack can therefore persist. The predicted behavior of the monopolist is grounded in individual behavior under the assumption of utility maximization.
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Bibliographic InfoPaper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 201353.
Length: 20 pages
Date of creation: 2013
Date of revision:
Publication status: Forthcoming in
firm organization; market structure; property rights;
Other versions of this item:
- Hildenbrand, Andreas & Duran, Mihael, 2013. "The role of managerial work in market performance: A monopoly model with team production," University of Tuebingen Working Papers in Economics and Finance 66, University of Tuebingen, Faculty of Economics and Social Sciences.
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D2 - Microeconomics - - Production and Organizations
- D4 - Microeconomics - - Market Structure and Pricing
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
- NEP-BEC-2013-12-29 (Business Economics)
- NEP-CTA-2013-12-29 (Contract Theory & Applications)
- NEP-HRM-2013-12-29 (Human Capital & Human Resource Management)
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