Delegation and Limited Liability in a Modern Capitalistic Economy
We examine an effect of limited liability on strategic delegation in a Cournot duopoly with demand uncertainty. We establish that owners of each firm always delegate their tasks, decisions, and responsibility to a manager under limited liability, while they do not always do so under unlimited liability. This result is consistent with the fact that separation of ownership and management as well as limited liability prevail in many modern large companies.
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- Povel, Paul & Raith, Michael, 2004. "Financial constraints and product market competition: ex ante vs. ex post incentives," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 917-949, September.
- Franck, Bernard & Le Pape, Nicolas, 2008. "The commitment value of the debt: A reappraisal," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 607-615, March.
- Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
- Federico Etro, 2010. "Endogenous market structures and the optimal financial structure," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1333-1352, November.
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