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Delegation and Limited Liability in a Modern Capitalistic Economy

  • Tetsuya Shinkai


    (School of Economics, Kwansei Gakuin University)

  • Takao Ohkawa

    (Faculty of Economics, Ritsumeikan University)

  • Makoto Okamura

    (Economics Department, Ritsumeikan University and Hiroshima University)

  • Kozo Harimaya

    (Faculty of Business Administration, Ritsumeikan University)

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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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 87.

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Length: 33 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:kgu:wpaper:87
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  1. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
  2. 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.
  3. 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.
  4. 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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