Delegated Management In Dynamic Duopolies
This paper studies the commitment value of delegation in a model of dynamic competition. We argue that separating ownership and control delivers an instantaneous first-mover advantage. Thus, delegation would enable an oligopolistic firm to increase its equilibrium profit relative to direct management. We focus on remuneration strategies that provide managers with intertemporal production incentives: future wages depend on current effort. Their composition and functional form are endogenously determined by the requirement for Markov perfection. For the case of linear-quadratic payoffs, we obtain a closed-form solution for the equilibrium wage strategies which is independent of industry structure.
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Volume (Year): 12 (2010)
Issue (Month): 02 ()
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