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A Note on Strategic Delegation: The Role of Decreasing Returns to Scale

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  • Aitor Ciarreta

    (Universidad del Pais Vasco)

Abstract

We build a model of optimal design of managerial incentive schemes when the production technology exhibits decreasing returns to scale and firms compete à la Cournot. We borrow Fershtman and Judd (1987) and Kräkel (2005) framework. We show how there is a dominant strategy for entrepreneurs to delegate output decisions. Results depend on the degree of diseconomies of scale. We demostrate how for a class of parameters, managers may increase profits through delegation, a result that with constant returns does not hold.

Suggested Citation

  • Aitor Ciarreta, 2009. "A Note on Strategic Delegation: The Role of Decreasing Returns to Scale," Economics Bulletin, AccessEcon, vol. 29(1), pages 277-285.
    • Handle: RePEc:ebl:ecbull:eb-08l10038
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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