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Environmental delegation versus sales delegation: a game-theoretic analysis

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  • Buccella, Domenico
  • Fanti, Luciano
  • Gori, Luca

Abstract

Recently, in their 2019 paper, Poyago-Theotoky and Yong consider a managerial Cournot duopoly with pollution externalities and emission taxes and propose an explicit environmental incentive in a managerial compensation contract. The authors compare several exogenous equilibria emerging in the symmetric sub-games in which the owner offers either the environmental delegation contract or the standard sales delegation contract: abatement and social welfare (resp. emission taxes) under environmental delegation are higher (resp. lower) than under sales delegation. The present work extends their model using a game-theoretic approach to analyse the asymmetric sub-games, in which only one firm adopts the environmental contract, and adds the contract decision stage. Results show that the environmental contract never emerges as the unique sub-game perfect Nash equilibrium of this non-cooperative managerial decision game. Indeed, if the green R&D technology is efficient, the sales contract emerges as the unique Pareto-inefficient Nash equilibrium. Otherwise, if the green R&D technology is inefficient, multiple Nash equilibria in pure strategies exist (coordination game). Our findings offer direct policy implications.

Suggested Citation

  • Buccella, Domenico & Fanti, Luciano & Gori, Luca, 2023. "Environmental delegation versus sales delegation: a game-theoretic analysis," Environment and Development Economics, Cambridge University Press, vol. 28(5), pages 469-485, October.
    • Handle: RePEc:cup:endeec:v:28:y:2023:i:5:p:469-485_4
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    Cited by:

    1. Xing, Mingqing & Lee, Sang-Ho, 2024. "Cross-ownership and green managerial delegation contracts in a mixed oligopoly," Journal of Environmental Economics and Management, Elsevier, vol. 126(C).
    2. Sumi Cho & Sang‐Ho Lee, 2024. "Cross ownership and environmental corporate social responsibility with environmental cooperation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(1), pages 446-468, January.
    3. Lili Xu & Sang‐Ho Lee, 2023. "Cournot–Bertrand comparisons under double managerial delegation contracts with sales and environmental incentives," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(6), pages 3409-3421, September.
    4. Domenico Buccella & Luciano Fanti & Luca Gori & Mauro Sodini, 2024. "The abatement game in a dynamic oligopoly: social welfare versus profits," Annals of Operations Research, Springer, vol. 337(3), pages 1037-1065, June.
    5. Xubei Lian & Leonard F. S. Wang & Kai Zhang, 2025. "Cross‐Ownership, Green Managerial Delegation, and Emission Taxation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(2), pages 1191-1205, March.

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