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The Babu And The Boxwallah Managerial Incentives And Government Intervention

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  • Kaushik Basu

    (Delhi School of Economics)

  • Arghya Ghosh

    (Delhi School of Economics)

  • Tridip Ray Author-Workplace-Delhi School of Economics

Abstract

A game is modelled where the government confronts a monopoly. The latter chooses price and maximises profit and the former chooses the ad valorem tax rate and maximises the tax-revenue collected. We allow the government and the monopoly to delegate the final decision-making to, respectively, a bureaucrat and a manager. The incentive equilibrium of the model is characterised. It is shown that the ability to delegate decisions heightens the inefficiencies that arise from a monopoly.

Suggested Citation

  • Kaushik Basu & Arghya Ghosh & Tridip Ray Author-Workplace-Delhi School of Economics, 1994. "The Babu And The Boxwallah Managerial Incentives And Government Intervention," Working papers 01, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:01
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    1. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    2. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn.
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