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Strategic trade policy with bargaining over managerial contracts

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  • Luciano Fanti
  • Domenico Buccella

Abstract

This paper re‐examines the well‐known activist regime's inefficiency (governments set export subsidies) in a sales–delegation game with owner–manager bargaining over contracts. Contrary to the received literature, this bargaining process may (a) induce governments to set a tax if products are not too substitute or complements and (b) lead to an efficient (inefficient) equilibrium provided that products are sufficiently differentiated (not too complements). Therefore, unilateral public intervention can be optimal: in case of rival governments' retaliation, under appropriate product competition degrees, welfares are larger than under free trade even for small managers' power. Thus, managerial delegation practices are crucial also for international trade issues.

Suggested Citation

  • Luciano Fanti & Domenico Buccella, 2017. "Strategic trade policy with bargaining over managerial contracts," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(8), pages 1154-1161, December.
    • Handle: RePEc:wly:mgtdec:v:38:y:2017:i:8:p:1154-1161
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    Cited by:

    1. Luciano Fanti & Domenico Buccella, 2023. "Vertical industry and strategic trade policy," SN Business & Economics, Springer, vol. 3(2), pages 1-16, February.
    2. Zhuo Chen & Bo Yan, 2022. "The impact of trade policy on soybean futures in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 1152-1163, June.
    3. Xingtang Wang & Leonard F.S. Wang, 2021. "External bargaining versus internal manipulation: A theory of managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 134-142, January.
    4. Wang, Xingtang & Wang, Leonard F.S., 2021. "Vertical product differentiation, managerial delegation and social welfare in a vertically-related market," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 149-159.

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